Topics in Monetary Economics

Transcription

1 Topics in Monetary Economics Francesco Lippi University of Sassari and EIEF flippi at uniss.it September 30, 2009 In this class we study monetary models with a focus on money demand. In most of the models considered real balances will be derived as ways to economize on various transactions. We will study properties of both individual (i.e. households and firms) as well as aggregate money demand. Both theory and empirics will be employed to assess the fit of different models and discuss the welfare consequence of different policies. The class will have mostly a theoretical bent, but we will also review a selection of the empirical evidence, both aggregate and micro, on both long-run and short-run properties of money demand, properties of interest rates, inflation, and the use of means of payments. This is a class prepared for the Doctoral program of Tor Vergata University and the EIEF graduate students in the fall 2009.

2 Main Topics 1. Money, velocity, prices, interest rates, and the optimal quantity of money. Money, neutrality and superneutrality in a simple OLG economy (Samuelson) Lucas (1996) Money in the Utility function, CIA, Sidrausky and Goodfriend-MacCallum type of models, Lucas (2000). Estimates of Long Run Money Demand: Hoffman et al. (1995), Stock & Watson (1993), Carlson & Keen (1996), Teles & Zhou (2005), Dutkowsky et al. (2006), Ball (2001), Ireland (2009), 2. Inventory Theoretic Transactions based models of money. Households/workers: Baumol (1952), Tobin (1956), Attanasio et al. (2002) Financial innovation: Lippi & Secchi (2009), Alvarez & Lippi (2009a). Firms (theory): Miller & Orr (1966), Frenkel & Jovanovic (1980). Estimates: Mulligan (1997), Harford (1999), Bates et al. (2006), Opler et al. (1999). GE implementations: Romer (1986) and Silva (2009). 3. Choice of Means of Payment. Cash vs. Credit: Lucas & Stokey (1987), Ireland (1995), Lacker & Schreft (1996). Estimates: Bounie & Francois (2006), Klee (2008), Mooslechner et al. (2006). 4. Broader money aggregates (with information and transaction frictions) The savings problem with information frictions Duffie & Sun (1990), Abel et al. (2007), Abel et al. (2009) Durable consumption with Transactions and information costs Alvarez et al. (2009), chapter 10 of Stokey (2009). 5. Open Market Operations and Liquidity Effects with Segmented Asset Markets. Classics: Grossman & Weiss (1983), Rotemberg (1984), Lucas (1990). Output Effects Fuerst (1992), Christiano & Eichenbaum (1992). Variations: Alvarez et al. (2001), Alvarez et al. (2002), Occhino (2004), Edmond & Weill (2009), Alvarez & Lippi (2009b). 1

3 Further readings 6. Nominal Rigidities: sticky prices One Period Prices Set in Advance: Blanchard & Kiyotaki (1987) Calvo-type dynamics: Yun (1996), Gali (2002). Revisiting the Friedman Rule: optimality of stable price level: Khan et al. (2003), Yun (2005). 7. Signal extraction problem: Is is real or is it nominal? Lucas (1996), Lucas (1972), Wallace (1992), McCallum (1984). 8. The Friedman Rule with distortionary taxes, Chari et al. (1996), Correia & Teles (1996). 9. Cost of Inflation with Heterogeneous agents. Money as a buffer stock: Lucas (1980), chapter 13.5 of Stokey & Lucas (1989), Imrohoroglu (1992). Corners: Mulligan & i Martin (2000), Attanasio et al. (2002). Corners and Cash-Credit: Erosa & Ventura (2002). 2

4 References Abel, A. B., Eberly, J. C. & Panageas, S. (2007), Optimal inattention to the stock market, American Economic Review 97(2), Abel, A. B., Eberly, J. C. & Panageas, S. (2009), Optimal inattention to the stock market with information costs and transactions costs. Mimeo - The Wharton School of the University of Pennsilvania. Alvarez, F., Atkeson, A. & Kehoe, P. (2002), Money, interest rates, and exchange rates with endogenously segmented markets, Journal of Political Economy 110(1), Alvarez, F., Guiso, L. & Lippi, F. (2009), Durable consumption and asset management with transactions and information costs, Mimeo, University of Chicago. Alvarez, F. & Lippi, F. (2009a), Financial innovation and the transactions demand for cash, Econometrica 77(2), Alvarez, F. & Lippi, F. (2009b), Persistent liquidity effect and long run money demand, Mimeo, University of Chicago. Alvarez, F., Lucas, R. E. J. & Weber, W. E. (2001), Interest rates and inflation, American Economic Review 91(2), URL: Attanasio, O., Guiso, L. & Jappelli, T. (2002), The demand for money, financial innovation and the welfare cost of inflation: An analysis with household data, Journal of Political Economy 110(2), Ball, L. (2001), Another look at long-run money demand, Journal of Monetary Economics 47, Bates, T. W., Kahle, K. M. & Stulz, R. M. (2006), Why do u.s. firms hold so much more cash than they used to?, Working Paper 12534, National Bureau of Economic Research. Baumol, W. J. (1952), The transactions demand for cash: An inventory theoretic model, Quarterly Journal of Economics 66(4), Blanchard, O. J. & Kiyotaki, N. (1987), Monopolistic competition and the effects of aggregate demand, American Economic Review 77(4),

5 Bounie, D. & Francois, A. (2006), Cash, check or bank card? the effects of transaction characteristics on the use of payment instruments, Working Papers in Economics and Social Sciences ESS-06-05, Department EGSH - Telecom Paris. Carlson, J. B. & Keen, B. D. (1996), MZM: a monetary aggregate for the 1990s?, Economic Review (Q II), Chari, V. V., Christiano, L. J. & Kehoe, P. J. (1996), Optimality of the friedman rule in economies with distorting taxes, Journal of Monetary Economics 37(2-3), Christiano, L. J. & Eichenbaum, M. (1992), Liquidity effects and the monetary transmission mechanism, American Economic Review 82(2), URL: Correia, I. & Teles, P. (1996), Is the friedman rule optimal when money is an intermediate good?, Journal of Monetary Economics 38(2), Duffie, D. & Sun, T.-s. (1990), Transactions costs and portfolio choice in a discretecontinuous-time setting, Journal of Economic Dynamics and Control 14(1), Dutkowsky, D. H., Cynamon, B. Z. & Jones, B. E. (2006), U.S. narrow money for the twentyfirst century, Economic Inquiry 44(1), URL: Edmond, C. & Weill, P. O. (2009), Aggregate implications of micro asset market segmentation, Ucla mimeo. URL: Erosa, A. & Ventura, G. (2002), On inflation as a regressive consumption tax, Journal of Monetary Economics 49(4), Frenkel, J. A. & Jovanovic, B. (1980), On transactions and precautionary demand for money, The Quarterly Journal of Economics 95(1), Fuerst, T. S. (1992), Liquidity, loanable funds, and real activity, Journal of Monetary Economics 29(1), URL: Gali, J. (2002), New perspectives on monetary policy, inflation, and the business cycle, NBER Working Papers 8767, National Bureau of Economic Research, Inc. URL: 4

6 Grossman, S. & Weiss, L. (1983), A transactions-based model of the monetary transmission mechanism, American Economic Review 73(5), URL: Harford, J. (1999), Corporate cash reserves and acquisitions, Journal of Finance 54(6), Hoffman, D. L., Rasche, R. H. & Tieslau, M. A. (1995), The stability of long-run money demand in five industrial countries, Journal of Monetary Economics 35(2), URL: Imrohoroglu, A. (1992), The welfare cost of inflation under imperfect insurance, Journal of Economic Dynamics and Control 16(1), Ireland, P. N. (1995), Endogenous financial innovation and the demand for money, Journal of Money, Credit and Banking 27(1), Ireland, P. N. (2009), On the welfare cost of inflation and the recent behavior of money demand, American Economic Review 99(3), Khan, A., King, R. G. & Wolman, A. L. (2003), Optimal monetary policy, Review of Economic Studies 70(4), Klee, E. (2008), How people pay: Evidence from grocery store data, Journal of Monetary Economics 55(3), Lacker, J. M. & Schreft, S. L. (1996), Money and credit as means of payment, Journal of Monetary Economics 38(1), Lippi, F. & Secchi, A. (2009), Technological change and the households demand for currency, Journal of Monetary Economics 56(2), Lucas, R. E. J. (2000), Inflation and welfare, Econometrica 68(2), Lucas, R. J. (1972), Expectations and the neutrality of money, Journal of Economic Theory 4(2), Lucas, R. J. (1990), Liquidity and interest rates, Journal of Economic Theory 50(2), URL: Lucas, Robert E, J. (1980), Equilibrium in a pure currency economy, Economic Inquiry 18(2),

7 Lucas, Robert E, J. (1996), Nobel lecture: Monetary neutrality, Journal of Political Economy 104(4), URL: Lucas, Robert E, J. & Stokey, N. L. (1987), Money and interest in a cash-in-advance economy, Econometrica 55(3), URL: McCallum, B. T. (1984), A linearized version of lucas s neutrality model, Canadian Journal of Economics 17(1), URL: Miller, M. & Orr, D. (1966), A model of the demand for money by firms, Quarterly Journal of Economics 80(3), Mooslechner, P., Stix, H. & Wagner, K. (2006), How are payments made in austria? results of a survey on the structure of austrian households use of payment means in the context of monetary policy analysis, Monetary Policy & the Economy (2), URL: Mulligan, C. B. (1997), Scale economies, the value of time, and the demand for money: Longitudinal evidence from firms, The Journal of Political Economy 105(5), Mulligan, C. B. & i Martin, X. S. (2000), Extensive margins and the demand for money at low interest rates, Journal of Political Economy 108(5), Occhino, F. (2004), Modeling the response of money and interest rates to monetary policy shocks: A segmented markets approach, Review of Economic Dynamics 7(1), URL: Opler, T., Pinkowitz, L., Stulz, R. & Williamson, R. (1999), The determinants and implications of corporate cash holdings, Journal of Financial Economics 52(1), Romer, D. (1986), A simple general equilibrium version of the baumol-tobin model, The Quarterly Journal of Economics 101(4), Rotemberg, J. J. (1984), A monetary equilibrium model with transactions costs, Journal of Political Economy 92(1), URL: 6

8 Silva, A. (2009), Individual and aggregate money demands, acsilva/research/asilvamoneydemand.pdf, Universidade Nova de Lisboa, Faculdade de EconomiaI. Stock, J. H. & Watson, M. W. (1993), A simple estimator of cointegrating vectors in higher order integrated systems, Econometrica 61(4), URL: Stokey, N. (2009), The Economics of Inaction: Stochastic Control Models with Fixed Costs, Princeton University Press, New Jersey, NJ. Stokey, N. L. & Lucas, R. E. (1989), Recursive Methods in Economic Dynamics, Harvard University Press. Teles, P. & Zhou, R. (2005), A stable money demand: Looking for the right monetary aggregate, Economic Perspectives, Federal Reserve Bank of Chicago Q1, Tobin, J. (1956), The interest elasticity of transactions demand for money, Review of Economics and Statistics 38(3), Wallace, N. (1992), Lucas s signal-extraction model : A finite state exposition with aggregate real shocks, Journal of Monetary Economics 30(3), Yun, T. (1996), Nominal price rigidity, money supply endogeneity,and business cycles, Journal of Monetary Economics 37, Yun, T. (2005), Optimal monetary policy with relative price distortions, American Economic Review 95(1),