Efficient propagation of shocks and the optimal return on money
AbstractWe study optimal allocations in an environment in which money is essential due to lack of commitment and anonymity of individuals. Because the economy features aggregate preference shocks, we apply a notion of implementability that allows for allocations with non-trivial business-cycle dynamics for the propagation of shocks. We show that history dependence is predicted by the theory of second best and becomes necessary for optimality when the degree of patience is neither too low nor too high. Our analysis concludes with a discussion of whether there is a role for the propagation of shocks in alternative economic environments.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Theory.
Volume (Year): 142 (2008)
Issue (Month): 1 (September)
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Web page: http://www.elsevier.com/locate/inca/622869
Other versions of this item:
- Ricardo Cavalcanti & Andres Erosa, 2006. "Efficient Propagation of Shocks and the Optimal Return of Money," 2006 Meeting Papers 738, Society for Economic Dynamics.
- E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
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- Huang, Pidong, 2012.
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- Huang, Pidong & Igarashi, Yoske, 2011. "A comment on: 'Efficient propagation of shocks and the optimal return on money'," MPRA Paper 51206, University Library of Munich, Germany.
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