We construct a dynamic heterogeneous-agent model with random uninsurable endowments. Two allocation mechanisms are considered, one with long-term complete credit arrangements under private information, and one with incomplete competitive markets. A role for money arises due to random limited participation. A Friedman rule is optimal in the first economy, and replicates a pure credit arrangement in the second. Computational results show that steady state allocations are quite different under the two arrangements, though the responses to changes in long-run inflation are similar.
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Paper provided by University of Iowa, Department of Economics in its series Working Papers with number
97-20.
Length: 43 Pages Date of creation: Dec 1997 Date of revision: Handle: RePEc:uia:iowaec:97-20
Contact details of provider: Postal: University of Iowa, Department of Economics, Henry B. Tippie College of Business, Iowa City, Iowa 52242 Phone: (319) 335-0829 Fax: (319) 335-1956 Web page: http://tippie.uiowa.edu/economics/ More information through EDIRC
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Find related papers by JEL classification: D8 - Microeconomics - - Information, Knowledge, and Uncertainty E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
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