On the coexistence of money and higher-return assets and its social role

Hu, Tai Wei; Rocheteau, Guillaume

doi:10.1016/j.jet.2013.09.006

Cited by 29 publications

(23 citation statements)

References 36 publications

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“…Our coexistence result is similar to the main results in Hu and Rocheteau (2013). However, different from that paper, our main focus is on the interaction between search intensity and the endogenous choice of media of exchange.…”

Section: Related Literaturesupporting

confidence: 87%

“…A characterization of the pairwise core in a related setting can be found in Hu and Rocheteau (2013)'s Supplementary Appendix B. The following proposition shows that these necessary conditions and the pairwise core requirement are also sufficient.…”

Section: Methodsmentioning

confidence: 91%

“…In contrast with the implementability result in Hu and Rocheteau (2013), here we have to worry about the implementation of search efforts determined by the buyer's trade surplus through (14). As a result, the buyer's surplus affects both their portfolio choice and search decision.…”

Section: Is Implementable If and Only Ifmentioning

confidence: 99%

“…In addition, quantities traded in the DM are inefficiently low (q c < q * ). With a shortage of liquidity, society faces a trade-off between two inefficiencies, as highlighted by Hu and Rocheteau (2013): (i ) the shortage of capital for liquidity purposes, and (ii ) the overaccumulation of capital for productive purposes. Lemma 2 then shows that whenever the first best is not implementable, overaccumulation of capital is socially optimal in order to mitigate the shortage of liquidity.…”

Section: Optimal Allocationmentioning

confidence: 99%

“…Following Hu, Kennan, and Wallace (2009), we consider socially optimal allocations that are individually rational and immune to pairwise defections. As in Hu and Rocheteau (2013), our economy features coexistence of money and higher return capital as a feature of the optimal trading mechanism. Relative to those papers, we obtain new insights on the nontrivial interaction between individual search decisions and portfolio choices.…”

Section: Introductionmentioning

confidence: 98%

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Responding to the Inflation Tax

Zhang

2017

Macroecon. Dynam.

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General rightsThis document is made available in accordance with publisher policies. Please cite only the published version using the reference above. AbstractWe adopt mechanism design to study the effects of inflation on output, trade, and capital accumulation. Our theory captures multiple channels for individuals to respond to inflation: search intensity, market participation, and substitution between money and a higher return asset. We characterize constrained efficient allocations and show inflation has non-monotonic effects on the frequency of trades (extensive margin) and the total quantity traded (intensive margin). The model features monetary superneutrality for low inflation rates, non-linearities in trading frequencies, and substitution of money for capital for higher inflation rates. While these effects are difficult to capture in previous models, we show how they are intimately related by all being features of an optimal trading mechanism.JEL classification: D82, D83, E40, E50.

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Section: Related Literaturesupporting

confidence: 87%

Section: Methodsmentioning

confidence: 91%

Section: Is Implementable If and Only Ifmentioning

confidence: 99%

Section: Optimal Allocationmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 98%

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Responding to the Inflation Tax

Zhang

2017

Macroecon. Dynam.

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On the optimal quantity of liquid bonds

Huber

Kim

2017

Journal of Economic Dynamics and Control

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We develop a dynamic general equilibrium model to analyze the optimal quantity of liquid bonds by investigating the following three questions: Under what conditions is it socially desirable to contract the bond supply, what incentive problems are mitigated by doing this, and how large are the effects? We show that reducing the bond supply induces agents to increase their demand for money, which can enhance welfare by improving the allocation of the medium of exchange. However, this effect fails for high inflation rates, because agents hold so little money in the first place that manipulating the bond supply is not enough to correct the misallocation.

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On the benefits of currency reform

Krishna

Leukhina

2019

Journal of Economic Dynamics and Control

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Money allows agents to achieve allocations that are not possible without it. However, currency in most economies is a uniform object, and there may be incentive compatible allocations that cannot be implemented with a uniform currency. We show that currency reform, ie, changing the monetary base by replacing one currency with another, is a powerful tool that can enable a monetary authority to achieve a desired allocation. Our monetary mechanism with currency reform is anonymous and features a nonlinear exchange rate between currencies and a monotone value of money. These results help interpret the characteristics of currency reforms observed in practice.

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On the coexistence of money and higher-return assets and its social role

Cited by 29 publications

References 36 publications

Responding to the Inflation Tax

Responding to the Inflation Tax

On the optimal quantity of liquid bonds

On the benefits of currency reform

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