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

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Author Info
S. Rao Aiyagari (University of Rochester)
Stephen D. Williamson (University of Iowa)

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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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File URL: http://129.3.20.41/eps/game/papers/9802/9802003.pdf
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Paper provided by EconWPA in its series Game Theory and Information with number 9802003.

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Length: 43 pages
Date of creation: 04 Feb 1998
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Handle: RePEc:wpa:wuwpga:9802003

Note: Type of Document - PDF; prepared on Acrobat PDF; pages: 43 ; figures: included
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Keywords: 97-20

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Find related papers by JEL classification:
C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
D8 - Microeconomics - - Information, Knowledge, and Uncertainty

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Harold L. Cole & Narayana R. Kocherlakota, 1999. "Efficient allocations with hidden income and hidden storage," Staff Report 238, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  2. Thomas F. Cooley & Gary D. Hansen, 1987. "The Inflation Tax in a Real Business Cycle Model," UCLA Economics Working Papers 496, UCLA Department of Economics. [Downloadable!]
    Other versions:
  3. Atkeson, Andrew & Lucas, Robert E, Jr, 1992. "On Efficient Distribution with Private Information," Review of Economic Studies, Blackwell Publishing, vol. 59(3), pages 427-53, July. [Downloadable!] (restricted)
  4. 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.
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  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. [Downloadable!] (restricted)
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  6. Fuerst, Timothy S., 1992. "Liquidity, loanable funds, and real activity," Journal of Monetary Economics, Elsevier, vol. 29(1), pages 3-24, February. [Downloadable!] (restricted)
  7. Narayana R. Kocherlakota & Neil Wallace, 1997. "Optimal allocations with incomplete record-keeping and no commitment," Working Papers 578, Federal Reserve Bank of Minneapolis. [Downloadable!]
  8. 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. [Downloadable!] (restricted)
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  9. Green, Edward J & Oh, Soo-Nam, 1991. "Contracts, Constraints and Consumption," Review of Economic Studies, Blackwell Publishing, vol. 58(5), pages 883-99, October. [Downloadable!] (restricted)
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  10. Aiyagari, S Rao, 1994. "Uninsured Idiosyncratic Risk and Aggregate Saving," The Quarterly Journal of Economics, MIT Press, vol. 109(3), pages 659-84, August. [Downloadable!] (restricted)
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  11. Dotsey, Michael & Ireland, Peter, 1996. "The welfare cost of inflation in general equilibrium," Journal of Monetary Economics, Elsevier, vol. 37(1), pages 29-47, February. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Stephen D. Williamson, 1998. "Payments Systems with Random Matching and Private Information," Game Theory and Information 9802004, EconWPA. [Downloadable!]
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