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Monetary Policy and the Distribution of Money and Capital

  • Miguel Molico

    (University of Western Ontario)

  • Yahong Zhang

    ()

    (Bank of Canada)

Existing search-theoretical model of money have in general abstracted from the existence and accumulation of other assets, in particular, capital. In this paper we present a model where the optimal portfolio allocation decision of agents is explicitly modeled. Trade frictions in a decentralized consumption goods market give rise to an endogenous role for money. Capital goods are assumed to be type-specific and traded in a centralized market. Uninsurable idiosyncratic uncertainty in production and trading opportunities leads to a non-degenerate distribution of wealth. By focusing on stationary equilibria we characterize numerically the wealth distribution and its composition. We further analyze the effects of monetary policy on the equilibrium patterns of exchange, the distribution of wealth, capital accumulation and welfare. In particular, we show that a moderate expansionary policy, accomplished via lump-sum transfers, can lead to a steady-state increase in aggregate output, aggregate consumption, capital accumulation, and welfare

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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2006 with number 136.

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Date of creation: 04 Jul 2006
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Handle: RePEc:sce:scecfa:136
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  1. Cooley, T.F. & Hansen, G.D., 1991. "The Welfare Costs of Moderate Inflations," RCER Working Papers 266, University of Rochester - Center for Economic Research (RCER).
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  4. Levine, David K., 1991. "Asset trading mechanisms and expansionary policy," Journal of Economic Theory, Elsevier, vol. 54(1), pages 148-164, June.
  5. Shouyong Shi, 1998. "Search, Inflation, and Capital Accumulation," Working Papers 971, Queen's University, Department of Economics.
  6. Joydeep Bhattacharya & Joseph H. Haslag & Antoine Martin, 2004. "Heterogeneity, redistribution, and the Friedman rule," Research Working Paper RWP 04-01, Federal Reserve Bank of Kansas City.
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  9. Stephen D. Williamson, 2006. "Search, Limited Participation, And Monetary Policy ," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(1), pages 107-128, 02.
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  11. S. Boragan Aruoba & Christopher J. Waller & Randall Wright, 2007. "Money and capital," Working Paper 0714, Federal Reserve Bank of Cleveland.
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  13. Deviatov Alexei & Wallace Neil, 2001. "Another Example in which Lump-sum Money Creation is Beneficial," The B.E. Journal of Macroeconomics, De Gruyter, vol. 1(1), pages 1-22, February.
  14. Fernando Alvarez & Andrew Atkeson & Patrick J. Kehoe, 2002. "Money, Interest Rates, and Exchange Rates with Endogenously Segmented Markets," Journal of Political Economy, University of Chicago Press, vol. 110(1), pages 73-112, February.
  15. Jonathan Chiu, 2007. "Endogenously Segmented Asset Market in an Inventory Theoretic Model of Money Demand," Working Papers 07-46, Bank of Canada.
  16. Shi, Shouyong, 1999. "Money, capital, and redistributive effects of monetary policies," Journal of Economic Dynamics and Control, Elsevier, vol. 23(4), pages 565-590, February.
  17. Chris Edmond, 2002. "Self-Insurance, Social Insurance, and the Optimum Quantity of Money," American Economic Review, American Economic Association, vol. 92(2), pages 141-147, May.
  18. Aleksander Berentsen & Gabriele Camera & Christopher Waller, . "The Distribution of Money Balances and the Non-Neutrality of Money," IEW - Working Papers 220, Institute for Empirical Research in Economics - University of Zurich.
  19. Miguel Molico, 2006. "The Distribution Of Money And Prices In Search Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(3), pages 701-722, 08.
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