Precautionary money balances with aggregate uncertainty
AbstractThis paper studies the dependence of velocity on stochastic monetary growth in a model where households demand money for both its transactions and precautionary services. The setup consists of a cash-in-advance economy in which individual uncertainty leads households to value money for its insurance against adverse endowment shocks. With stochastic monetary growth the distribution of money balances across households does not settle down to a time invariant distribution, so one aim of this paper is to model this distribution as an endogenous state variable.
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Bibliographic InfoPaper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 399.
Date of creation: 1991
Date of revision:
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