Money in the utility function: an empirical implementation

Poterba, James M.; Rotemberg, Julio J.

doi:10.1017/cbo9780511759628.011

Cited by 83 publications

(69 citation statements)

References 8 publications

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“…17 Feenstra (1986) showed the functional equivalence of models with money-in-the-utility and models with transaction or liquidity costs. The specic form of the utility function in this paper reects that more consumption raises the marginal utility of bank debt holdings for households and is a version of Poterba and Rotemberg (1986) and Christiano, Motto, and Rostagno (2010).…”

Section: Discussion Of Assumptionsmentioning

confidence: 99%

Capital Requirements, Risk Choice, and Liquidity Provision in a Business Cycle Model

Begenau

2015

SSRN Journal

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This paper develops a quantitative dynamic general equilibrium model in which households' preferences for safe and liquid assets constitute a violation of Modigliani and Miller. I show that the scarcity of these coveted assets created by increased bank capital requirements can reduce overall bank funding costs and increase bank lending. I quantify this mechanism in a two-sector business cycle model featuring a banking sector that provides liquidity and has excessive risk-taking incentives. Under reasonable parametrizations, the marginal benet of higher capital requirements related to this channel signicantly exceeds the marginal cost, indicating that US capital requirements have been sub-optimally low.

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Section: Discussion Of Assumptionsmentioning

confidence: 99%

Capital Requirements, Risk Choice, and Liquidity Provision in a Business Cycle Model

Begenau

2015

SSRN Journal

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“…Following and Poterba and Rotemberg (1987) . 21 The disturbances u 1s and u 2 s are both distributed…”

Section: The Euler Equationsmentioning

confidence: 98%

Capm Risk Adjustment for Exact Aggregation Over Financial Assets

1997

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Barnett originated the Divisia monetary aggregates, which in continuous time exactly track any monetary aggregator function under perfect certainty. With user costs measuring the prices of the services of components, Barnett's aggregates are based on Francois Divisia's derivation of the Divisia line integral from the first-order conditions for optimizing behavior by economic agents under perfect certainty. We derive an extended Divisia index from the first-order conditions (Euler equations) that apply under risk. Our extended Divisia index is the first extension of index number theory into the domain of decision making under risk and thereby produces a route for the extension of all index number theory to permit non-risk-neutrality. We generate simulated data from a modeled rational consumer and investigate the tracking accuracy of the extended Divisia index to the consumer's exact aggregator function.

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“…Diewert (1976) Poterba and Rotemberg (1987). Armed with the utility function's parameters, one can obviously construct a measure of the utility derived from liquidity services.…”

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confidence: 99%