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Money, Credit, and Allocation Under Complete Dynamic Contracts and Incomplete Markets

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Author Info

  • Aiyagari, S. Rao

    (University of Rochester)

  • Williamson, Stephen

    ()
    (University of Iowa)

Abstract

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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Bibliographic Info

Paper provided by University of Iowa, Department of Economics in its series Working Papers with number 97-20.

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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/
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Related research

Keywords: Money; Credit; Incomplete Markets;

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References

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  1. Aiyagari, S.R. & Williamson, S.D., 1997. "Credit in a Random Matching Model with Private Information," Working Papers 97-03, University of Iowa, Department of Economics.
  2. Narayana R. Kocherlakota & Neil Wallace, 1997. "Optimal allocations with incomplete record-keeping and no commitment," Working Papers 578, Federal Reserve Bank of Minneapolis.
  3. Fuerst, Timothy S., 1992. "Liquidity, loanable funds, and real activity," Journal of Monetary Economics, Elsevier, vol. 29(1), pages 3-24, February.
  4. Harold L Cole & Narayana Kocherlakota, 2010. "Efficient Allocations with Hidden Income and Hidden Storage," Levine's Working Paper Archive 1909, David K. Levine.
  5. Aiyagari, S. Rao & Williamson, Stephen D., 2000. "Money and Dynamic Credit Arrangements with Private Information," Journal of Economic Theory, Elsevier, vol. 91(2), pages 248-279, April.
  6. Cooley, T.F. & Hansen, G.D., 1988. "The Inflation Tax In A Real Business Cycle Model," Papers 88-05, Rochester, Business - General.
  7. Green, Edward J & Oh, Soo-Nam, 1991. "Contracts, Constraints and Consumption," Review of Economic Studies, Wiley Blackwell, vol. 58(5), pages 883-99, October.
  8. Michael Dotsey & Peter Ireland, 1994. "The welfare cost of inflation in general equilibrium," Working Paper 94-04, Federal Reserve Bank of Richmond.
  9. Narayana R. Kocherlakota, 1996. "The Equity Premium: It's Still a Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(1), pages 42-71, March.
  10. Allen, Franklin, 1985. "Repeated principal-agent relationships with lending and borrowing," Economics Letters, Elsevier, vol. 17(1-2), pages 27-31.
  11. Atkeson, Andrew & Lucas, Robert E, Jr, 1992. "On Efficient Distribution with Private Information," Review of Economic Studies, Wiley Blackwell, vol. 59(3), pages 427-53, July.
  12. Atkeson Andrew & Lucas Jr. , Robert E., 1995. "Efficiency and Equality in a Simple Model of Efficient Unemployment Insurance," Journal of Economic Theory, Elsevier, vol. 66(1), pages 64-88, June.
  13. S. Rao Aiyagari, 1993. "Uninsured idiosyncratic risk and aggregate saving," Working Papers 502, Federal Reserve Bank of Minneapolis.
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Cited by:
  1. Stephen D. Williamson, 1998. "Payments Systems with Random Matching and Private Information," Game Theory and Information 9802004, EconWPA.

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