Optimal monetary policy in an economy with incomplete markets and idiosyncratic risk

Akyol, Ahmet

doi:10.1016/j.jmoneco.2003.09.005

Cited by 69 publications

(108 citation statements)

References 27 publications

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“…Erosa and Ventura (2002) introduce a cash-in-advance constraint and a …xed cost of withdrawing money from …nancial markets to study the in ‡ation tax. Akyol (2004) analyses an endowment economy where the timing of market openings implies that only highincome agents hold money. Bai (2005) also introduces transaction costs in …nancial markets, but in the context of an endowment economy to study the real e¤ect of in ‡ation on the real interest rate (the so-called Mundell-Tobin e¤ect) and on welfare.…”

Section: Other Related Literaturementioning

confidence: 99%

The case for a financial approach to money demand

Ragot

2014

Journal of Monetary Economics

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The distribution of money across households is much more similar to the distribution of financial assets than to that of consumption expenditures. This is a puzzle for theories which directly link money demand to consumption. This paper shows that the joint distribution of money and financial assets can be explained in a heterogeneous-agent model where both a cash-in-advance constraint and financial adjustment costs, as in the Baumol-Tobin literature, are introduced. Studying each friction in turn, one finds that the financial friction explains more than 78% of total money demand

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Section: Other Related Literaturementioning

confidence: 99%

The case for a financial approach to money demand

Ragot

2014

Journal of Monetary Economics

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“…It is a realistic friction in the sense that people may need to make consumption decisions on daily or hourly bases due to biological needs, but do not have to make investment and working decisions as frequently. This type of timing friction is also assumed by Aiyagari and Williamson (2000) and Akyol (2004) in endowment economies with random income shocks. The timing friction is also akin to the transaction costs approach of Aiyagari and Gertler (1991), Chatterjee and Corbae (1992), and Greenwood and Williamson (1989).…”

Section: Individual Householdsmentioning

confidence: 99%

“…So m t (i) 0, t (i) = 0 and the shadow value of good t (i) = E t Pt w t+1 P t+1 . Equation (3) implies that consumption is given by c(i) = (i)…”

Section: Individual Householdsmentioning

confidence: 99%

“…3 Bewley's model has been studied extensively in the literature. But the main body of this literature focuses on endowment economy.…”

Section: Introductionmentioning

confidence: 99%

“…But the main body of this literature focuses on endowment economy. For example, Imrohoroglu (1992) and Akyol (2004) study the welfare costs of in ‡ation in the Bewley model. Like Bewley (1980), their models are based on an endowment economy without capital accumulation and are not analytically tractable.…”

Section: Introductionmentioning

confidence: 99%

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Liquidity and Welfare in a Heterogeneous-Agent Economy

Wen

2009

SSRN Journal

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This paper reconsiders the welfare costs of in ‡ation and the welfare gains from …nancial intermediation in a heterogeneous-agent economy where money is held as a store of value (as in Bewley, 1980). Because of heterogeneous liquidity demand, transitory lump-sum money injections can have persistent expansionary e¤ects despite ‡exible prices, and such e¤ects can be greatly ampli…ed by the banking system through the credit channel. However, permanent money growth can be extremely costly: With log utility functions, consumers are willing to reduce consumption by 15% (or more) to avoid a 10% annual in ‡ation. For the same reason, …nancial intermediation can signi…cantly improve welfare: The welfare costs of a collapse of the banking system is estimated as about 10 68% of aggregate output. These welfare implications di¤er dramatically from those of the existing literature.

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Growth and wage effects of the monetary policy

Afonso

2020

Int. J Fin Econ

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We analyse the effects of the monetary policy (inflation) on a set of real macroeconomic variables, via cash-in-advance (CIA) constraints and an 'inflation-rate' complexity R&D effect in a knowledge-driven horizontal R&D growth model with skilled and unskilled labour. The model is calibrated to the U.S. economy. We find that the monetary policy has no effect on firm-size growth, but a negative impact on economic growth, real interest rate, skill premium, R&D intensity, and welfare; positive influence on the velocity of money. The sign of the theoretical relationships is in line with the dominant empirical evidence.

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Optimal monetary policy in an economy with incomplete markets and idiosyncratic risk

Cited by 69 publications

References 27 publications

The case for a financial approach to money demand

The case for a financial approach to money demand

Liquidity and Welfare in a Heterogeneous-Agent Economy

Growth and wage effects of the monetary policy

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