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Monetary Policy and the Distribution of Money and Capital

Author

Listed:
  • Miguel Molico

    (University of Western Ontario)

  • Yahong Zhang

    () (Bank of Canada)

Abstract

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

Suggested Citation

  • Miguel Molico & Yahong Zhang, 2006. "Monetary Policy and the Distribution of Money and Capital," Computing in Economics and Finance 2006 136, Society for Computational Economics.
  • Handle: RePEc:sce:scecfa:136
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    File URL: http://repec.org/sce2006/up.16909.1139953529.pdf
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    References listed on IDEAS

    as
    1. Levine, David K., 1991. "Asset trading mechanisms and expansionary policy," Journal of Economic Theory, Elsevier, vol. 54(1), pages 148-164, June.
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    3. 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.
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    5. Chiu, Jonathan, 2014. "Endogenously Segmented Asset Market In An Inventory-Theoretic Model Of Money Demand," Macroeconomic Dynamics, Cambridge University Press, vol. 18(02), pages 438-472, March.
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    9. Lagos, Ricardo & Rocheteau, Guillaume, 2008. "Money and capital as competing media of exchange," Journal of Economic Theory, Elsevier, vol. 142(1), pages 247-258, September.
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    Citations

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    Cited by:

    1. Allen Head & Beverly Lapham, 2006. "Search, Market Power, and Inflation Dynamics," 2006 Meeting Papers 559, Society for Economic Dynamics.
    2. Cordelius Ilgmann & Martin Menner, 2011. "Negative nominal interest rates: history and current proposals," International Economics and Economic Policy, Springer, vol. 8(4), pages 383-405, December.
    3. Hu, Tai-Wei & Rocheteau, Guillaume, 2013. "On the coexistence of money and higher-return assets and its social role," Journal of Economic Theory, Elsevier, vol. 148(6), pages 2520-2560.
    4. Piotr Ciżkowicz & Marcin Hołda & Andrzej Rzońca, 2009. "Inflation and investment in monetary growth models," Bank i Kredyt, Narodowy Bank Polski, vol. 40(6), pages 9-40.
    5. Martin Menner, 2011. ""Gesell Tax" and Efficiency of Monetary Exchange," Working Papers. Serie AD 2011-26, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    6. repec:eee:dyncon:v:89:y:2018:i:c:p:100-116 is not listed on IDEAS
    7. repec:eee:dyncon:v:89:y:2018:i:c:p:117-119 is not listed on IDEAS

    More about this item

    Keywords

    search; money; capital; monetary policy; redistribution; wealth;

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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