Financial Innovations, Money Demand, and the Welfare Cost of Inflation

Berentsen, Aleksander; Huber, Samuel; Marchesiani, Alessandro

doi:10.2139/ssrn.2383346

Cited by 13 publications

(37 citation statements)

References 49 publications

(49 reference statements)

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“…6 Like in Williamson (2012), trade in the goods market is performed by money and claims to bonds. Williamson (2014a) focuses his analysis on an equilibrium where government bonds are scarce and thus are priced above their fundamental value.…”

Section: Literaturementioning

confidence: 99%

“…Table 3 gives a brief overview of our results. 1 7 We follow the …ndings of Berentsen et al (2015a) and use M1 adjusted for retail sweeps instead of M1, because it represents the stock of transaction media more accurately. 1 8 Money demand is measured as the ratio of M1 adjusted for retail sweeps divided by the nominal gross domestic product.…”

Section: Numerical Examplementioning

confidence: 99%

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Central Bank Purchases of Government Bonds

Huber

Kim

2015

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractWe develop a microfounded model, where agents have the possibility to trade money for government bonds in an over-the-counter market. It allows us to address important open questions about the e¤ects of central bank purchases of government bonds, these being: under what conditions these purchases can be welfare-improving, what incentive problems they mitigate, and how large these e¤ects are. Our main …nding is that this policy measure can be welfare-improving, by correcting a pecuniary externality. Concretely, the value of money is increased as central bank's purchases of government bonds induce agents to increase their demand for money, which is welfare-improving.

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Section: Literaturementioning

confidence: 99%

Section: Numerical Examplementioning

confidence: 99%

Central Bank Purchases of Government Bonds

Huber

Kim

2015

SSRN Journal

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“…The results from this literature are ambiguous. 9 There are a few theoretical papers that have studied the e §ects of a FTT. To our knowledge, only three papers investigated the implications of a FTT on welfare: Subrahmanyam (1998), Dow and Rahi (2000) and Dávila (2013).…”

Section: Literaturementioning

confidence: 99%

“…29 In this paragraph, we estimate the model's interest rate elasticity of money demand using a point approximation at the calibrated value of γ. In Berentsen et al (2014b) it is shown that when estimating the model's elasticity of money demand by ordinary least squares and a log-log specification, the standard errors are small. Thus, a point approximation at the calibrated value of γ represents a reasonable approximation for the model's elasticity of money demand.…”

Section: The Consumer's Bargaining Share In the Secondary Bond Marketmentioning

confidence: 99%

The Societal Benefits of a Financial Transaction Tax

2014

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractWe investigate the positive and normative implications of a tax on financial market transactions in a dynamic general equilibrium model, where agents face idiosyncratic liquidity shocks and financial trading is essential. Our main finding is that agents' portfolio choices display a pecuniary externality which results in too much trading. We calibrate the model to U.S. data and find an optimal tax rate of 2.5 percent. Imposing this tax reduces trading in financial markets by 30 percent.

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“…The basic setup follows Berentsen et al (2015). The main di¤erence is that we relax the full commitment assumption for …nancial transactions and study the implication of limited commitment for the shape of the money demand function.…”

Section: Environmentmentioning

confidence: 99%

Limited Commitment and the Demand for Money in the U.K.

2015

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractIn the United Kingdom, money demand deviates from the convex relationship suggested by monetary theory. Limited commitment of borrowers via banks can explain this observation. Our …nding is based on a microfounded monetary model, where a money market provides insurance against idiosyncratic liquidity shocks by o¤ering short-term loans and by paying interest on money market deposits. We calibrate the model to U.K. data and show that limited commitment significantly improves the …t between the theoretical money demand function and the data. Limited commitment can also explain the "liquidity trap"; i.e., why the ratio of credit to M1 is currently so low, despite the fact that nominal interest rates are at their lowest recorded levels.JEL classi…cation: E4, E5, D9.

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Financial Innovations, Money Demand, and the Welfare Cost of Inflation

Cited by 13 publications

References 49 publications

Central Bank Purchases of Government Bonds

Central Bank Purchases of Government Bonds

The Societal Benefits of a Financial Transaction Tax

Limited Commitment and the Demand for Money in the U.K.

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