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

Author

Listed:
  • 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.

Suggested Citation

  • Aiyagari, S. Rao & Williamson, Stephen, 1997. "Money, Credit, and Allocation Under Complete Dynamic Contracts and Incomplete Markets," Working Papers 97-20, University of Iowa, Department of Economics.
    • Handle: RePEc:uia:iowaec:97-20
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    Cited by:

    1. Stephen D. Williamson, 1998. "Payment systems with random matching and private information," Proceedings, Federal Reserve Bank of Cleveland, issue Aug, pages 551-572.

    More about this item

    Keywords

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    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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