the optimal taxation of fiat money in search equilibrium this paper investigates the link between welfare and the taxation of money in the context of a general equilibrium search model where decentralized trading motivates the use of fiat money since buyers with money must invest effort or search intensity to contact sellers with goods a natural trading externality arises given a sufficiently productive economy search efforts will be too low relative to social efficiency this provides a welfare improving role for policies which tax money balances the nature of this role is explored and its implications for optimal monetary policy discussed copyright 1995 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

inefficient credit booms this paper studies the welfare properties of competitive equilibria in an economy with financial frictions hit by aggregate shocks in particular it shows that competitive financial contracts can result in excessive borrowing ex ante and excessive volatility ex post even though from a first best perspective the equilibrium always displays under borrowing from a second best point of view excessive borrowing can arise the inefficiency is due to the combination of limited commitment in financial contracts and the fact that asset prices are determined in a spot market this generates a pecuniary externality that is not internalized in private contracts the model provides a framework to evaluate preventive policies which can be used during a credit boom to reduce the expected costs of a financial crisis copyright 2008 wiley blackwell

currency competition a partial vindication of hayek abstract this paper establishes the existence of equilibria for environments in which outside money is issued competitively such equilibria are typically believed not to exist because of a classic overissue problem if money is valued in equilibrium an issuer produces money until its value is driven to zero by backward induction money cannot have value in the first place this paper shows that overissuance is not a problem if agents believe that if an issuer produces more than some threshold number of notes then only those notes issued up to the threshold will be valued additional notes will be worthless this result is very general applying to any monetary economy in which equilibria with and without valued money exist if the money supply is finite the paper also compares the allocation achieved by a monopolist to that achieved with competitive issuance in both a search and an overlapping generations environment the results depend on the environment considered but two general conclusions arise first it is ambiguous whether competitive issuers can achieve a more desirable allocation than a monopolist second with competitive issuance a licensing agency can always improve on pure laissez faire and achieve the efficient allocation in the long run

a new monetarist model of fiat and e money we develop a dual payment new monetarist model where an electronic money e purse competes with fiat money cash the two payment instruments differ in terms of security cost and acceptability strategic complementarities lead to multiple monetary equilibria we establish the conditions under which e money can coexist with or replace fiat money and explain the reasons for the e purse failure success in a few countries we also compare welfare when one currency or both circulate when the risk of theft of cash is endogenous e money cannot replace cash entirely however low inflation can facilitate the adoption of e money in parallel with fiat money jel d83 e40 e50

on the launching of a new currency this paper studies the appropriate way of launching a new fiat currency within a dual currency search theoretic framework we demonstrate that legal tender laws may not be sufficient to guarantee the acceptability of the new currency and that the old currency may continue to circulate if the enforcement power of legal tender laws is weak and the fraction of individuals endowed with the new currency is too low the possibility of converting the old currency into the new one can ease the transition to the new currency only if it is combined with strict legal tender laws finally a network externality may generate inefficiencies in the decision to switch to the new currency

the impact of legitimacy pressure and corporate profitability on green innovation evidence from china top 100 abstract green innovation is an important approach for achieving sustainable development most research on determinants of corporate green innovation has focused on either external or internal drivers combining institutional theory and resource based view the scientific value of this study lies in simultaneously exploring the influence of external legitimacy pressure and internal corporate profitability and their interaction on green innovation samples of the top 100 listed companies in china from 2008 to 2012 were used and the results demonstrated that legitimacy pressure from stakeholders has a significantly positive influence on both corporate green product innovation and process innovation the results also revealed that corporate profitability positively affects green product innovation while there was found to be no significant influence on green process innovation moreover corporate profitability positively moderates the relationship between legitimacy pressure and green product innovation the results show that not only the single factor of external legitimacy pressure and internal profitability but also their interaction affects corporate green innovation practices this offers an integrating perspective on how corporations can be more innovative in sustainability

a search model of money and circulating private debt with applications to monetary policy a search theoretic model is used to examine the coexistence of money and circulating private debt money is still valued even though there coexists credit which circulates among agents and dominates in the rate of return when there coexist multiple equilibria the equilibrium with credit pareto dominates the one without credit if money supply is not extremely plentiful this article also provides some predictions about the effects of monetary policies a policy of open market operations whereby government discounts less for second hand debt decreases the value of money credit and interest rate prevailing in the market this policy can also improve welfare by making credit trade feasible when the only equilibrium entails no credit without intervention

firm behaviour under pollution ratio standards with non compliance this paper compares a firm s short run optimal production and abatement rules under emission level standards and standards expressed in terms of emissions per unit of output ratio standards the models allow for non compliance with standards with expected penalties dependant on either level or relative violations of the standard in question it is shown that ratio arguments make a difference to the optimal decision rules derived for a profit maximising firm for example for a given level of emissions the firm both produces more and abates more under a ratio standard so that ratio and level standards cannot be used interchangeably to achieve the same combination of emissions and output the implications for the efficiency of pollution control are briefly discussed

a search theoretic approach to monetary economics the essential function of money is its role as a medium of exchange the authors formalize this idea using a search theoretic equilibrium model of the exchange process that captures the double coincidence of wants problem with pure barter one advantage of the framework described here is that it is very tractable the authors also show that the model can be used to addre ss some substantive issues in monetary economics including the potenti al welfare enhancing role of money the interaction between specializat ion and monetary exchange and the possibility of equilibria with multip le fiat currencies copyright 1993 by american economic association

erratum standards versus standards the effects of different pollution restrictions when economists refer to pollution standards they almost universally mean uniform restrictions on pollution emissions e g william j baumol and wallace e oates 1975 ch 13 susan rose ackerman 1973 david besanko 1978 however in practice standards take many forms not only emissions restrictions but restrictions on pollution per unit of output or per unit of an input restrictions on the use of a polluting input or mandated use of a particular pollution control technology these specifications of regulations will have a variety of effects on a firm s resource allocation decisions for instance allowing pollution per unit of output as the standard instead of directly restricting the level of pollution gives the firm some choice in addition to reducing pollution it can increase its output to dilute the pollution this paper examines the effects of five different forms of pollution standards on input decisions the level of production and firm profits the results show that the different standards by providing firms with different incentives change the firm s allocation decisions and affect the relative profitability of the standards section i reviews the existing literature on the incentives of different instruments the following section describes the model to be used five different forms of pollution constraints are individually examined in section iii using a graphical approach their relative effects as well as some special cases are assessed in section iv finally section v raises the case of different standards when firms are not identical

legal restrictions and international currencies an experimental approach abstract this paper integrates theory and experiments to explore how policy rules related to government interventions can affect economic allocations and the international status of a currency using a two country two currency search model we study two types of government interventions 1 legal restrictions impacting a seller s ability to accept a foreign currency and 2 reductions to the cost a seller must pay to accept a foreign currency the first intervention can be viewed as a way to capture a decrease in capital controls while the second can be viewed as a way to explore the impact of reducing information costs associated with using a foreign currency our results indicate that abolishing legal restrictions that impact a seller s ability to accept a foreign currency can increase both quantities traded and the number of trades involving two types of currencies additionally the international status of currencies is significantly enhanced when sellers face very low foreign currency acceptance costs

dollarization and currency exchange abstract we use a dual currency money search model to study dollarization agents hold portfolios consisting of two currencies one of which is risky we use numerical methods to solve for the steady state distributions of currency portfolios transaction patterns and value functions as risk increases agents increasingly use the safe currency as a medium of exchange dollarization occurs furthermore the safe currency trades for multiple units of the risky currency this type of currency exchange and the corresponding nominal exchange rate are often observed in black market or unofficial currency exchange markets in developing countries due to decentralized trading a distribution of exchange rates arises whose mean and variance change in predictable ways when currency risk increases

government transaction policy and gresham s law abstract a search theoretic model is used to study how legal restrictions may account for the fact that gresham s law sometimes holds but other times fails legal restrictions is modeled here as policies that government adopts in the transactions with private agents such as at what prices it accepts a currency in exchange for goods and at what ratios it conducts currency exchange a government policy sufficiently favorable to light coins can induce the existence of an equilibrium where both coins circulate and light coins are even accepted at a premium a policy favorable to heavy coins may increase their value to such an extent that they are hoarded from circulation when this equilibrium did not exist without interventions

generating efficiency economic and environmental regulation of public and private electricity generators in spain abstract economic regulation of firms with market power has placed increasing emphasis on incentive based regulation such as price caps we focus on the effect of regulation as distinct from ownership and identify the effect of two different regulatory schemes on both publicly and privately owned spanish electricity generators publicly owned generators were more efficient under cost of service regulation private but not public firms responded to incentive regulation by increasing efficiency bringing their productivity to similar levels we introduce some novelty in modelling efficiency including three pollutants and declared plant availability as outputs and we test for the effect of environmental regulation in reducing pollutants

on the coexistence of money and higher return assets and its social role this paper adopts mechanism design to investigate the coexistence of at money and higherreturn assets we consider an economy with pairwise meetings where at money and riskfree capital compete as means of payment as in lagos and rocheteau 2008 the trading mechanism in pairwise meetings is chosen among all individually rational renegotiation proof mechanisms to maximize society s welfare we show that in any stationary monetary equilibrium capital commands a higher rate of return than at money

second best energy policies for heterogeneous firms this paper investigates second best issues in the regulation of external costs of energy use by heterogeneous firms the efficiency of regulatory energy policies depends in general on the policy incentives given for both output reduction and input substitution the resulting endogeneity of firms supply functions appears to lead to complicated policy rules in contrast to earlier efforts the analysis considers an arbitrarily large number of non identical price taking firms in a joint market a large variety of possible production functions including varying levels of economies of scale and possibilities for input substitution and elasticities of market demand which may vary from completely elastic to completely inelastic two second best instruments are considered namely output taxes and energy efficiency standards and are compared to the benchmark of first best energy taxes the underlying market factors determining the relative efficiency of these second best instruments when used optimally are identified

search bargaining money and prices the goal of this paper is to extend existing search theoretic models of fiat money which until now have assumed that the price level is exogenous by explicitly incorporating bilateral bargaining this allows us to determine the price level endogenously and leads to additional insights concerning the role of money for example we find that monetary equilibria are generally inefficient in the sense that output and prices differ from the solution to a social planner s problem although the difference can become small as the discount rate or search friction vanishes we also find that there exist nonstationary inflationary equilibria

coexistence of money and interest bearing securities abstract a random matching model with money is used to study the nominal yield on small denomination bearer safe discount securities issued by the government there is always one steady state with matured securities circulating at par and for some parameters another with them circulating at a discount in the former a necessary and sufficient condition for a positive nominal yield on not yet matured securities is exogenous discriminatory treatment of them by the government in the latter the post maturity discount on securities induces a deeper pre maturity discount even without such discriminatory treatment

comparative statics of a monopolistic firm facing price cap and command and control environmental regulations abstract an exhaustive comparative statics analysis of a model of a monopolistic firm facing price cap regulation and a variety of commonly implemented command and control environmental regulations is carried out the comparative statics are intrinsic to each of the models and thus form their basic empirically testable properties several unanticipated results emerge from the analysis in particular it is shown that a subset of the intrinsic comparative statics are qualitatively invariant to all of the commonly employed command and control environmental regulations that a price cap regulated profit maximizing monopoly might face while others are specific to the type of command and control environmental regulation in place

an information based theory of international currency abstract this paper develops an information based theory of international currency based on search frictions private trading histories and imperfect recognizability of assets using an open economy search model with multiple competing currencies the value of each currency is determined without requiring agents to use a particular currency to purchase a country s goods strategic complementarities in portfolio choices and information acquisition decisions generate multiple equilibria with different types of payment arrangements while some inflation can benefit the country issuing an international currency the threat of losing international status puts an inflation discipline on the issuing country when monetary authorities interact in a simple policy game the temptation to inflate can lead optimal policy to deviate from the friedman rule the calibrated model can produce a welfare cost of losing international status for the issuing country larger than previous findings though estimates depend critically on inflation rates and information costs

generalized search theoretic models of monetary exchange abstract virtually all simple search models of money assume agents with money cannot produce and so everyone has either 0 or 1 units of money in steady state we alternatively assume agents can always produce and simply restrict money inventories to 0 or 1 this seems better for many issues for example in the standard model it is difficult to interpret increases in the money supply because increasing the fraction of agents holding money decreases the economy s productive capacity our model avoids these problems and thus delivers more natural and simpler implications in many contexts we compare results on existence multiplicity and welfare across models

a macroeconomic model on the quality of government and economic performance i introduction the empirical analysis of hall and jones 1999 suggests that the fundamental determinant of a country s economic performance is its social infrastructure the institutions and government policies that provide incentives for individuals those incentives can encourage productive activity or predatory behavior like rent seeking and corruption although suppression of rent seeking appears to be most efficient if it is carried out by the government the power to make and enforce rules makes the government itself particularly prone to expropriation for instance while bureaucrats protect property by suppressing private rent seeking that interferes with productive activity they may also seek rents themselves by soliciting bribes from citizens 1 how do the efficiency of bureaucrats in protecting property rights and the degree of their corruption affect the relative rewards received by producers private rent seekers and bureaucrats and how does the reward structure interact with the allocation of talent between productive and unproductive activity and hence influence a country s economic performance 2 to address the above issues we work with an essentially standard macroeconomic model of production and trade externality based on the work of diamond 1982 in which productive activity is subject to private and public expropriation private rent seekers and bureaucrats do not produce they are completely dependent on producers efforts one important feature is the presence of a negative externality the unproductive activity exerts on the relative rewards that determine the allocation of agent across activity see murphy shleifer and vishny 1993 we first consider as a benchmark a model where the size of bureaucracy is exogenously given and then endogenize it as an individual s choice under an exogenous bureaucracy an agent chooses to be a producer or a private rent seeker producers conduct transactions in the decentralized markets more productive activity yields higher returns to both producers and private rent seekers and this strategic complementarity results in multiple pareto rankable equilibria the equilibrium with a larger population of producers and less rent seeking features higher welfare by choosing a small size of bureaucracy the government can establish the superior equilibrium as the unique outcome that also achieves the constrained optimum social welfare however is decreasing in the size of bureaucracy in this equilibrium the implication is that the smaller the size of bureaucracy the higher the welfare the optimal size of bureaucracy depends on two opposite influences on producers incentives one is the positive effect through better property rights protection the other includes various negative effects as a result of corruption tax burdens and the fact that resources taken up in the public sector could otherwise be devoted to production if the population of bureaucrats is endogenously determined equilibria exist as long as bureaucrats efficiency is high and corruption is low the equilibrium with a larger bureaucracy is associated with higher production and welfare the reason is that with sufficient efficiency in deterring private rent seeking and low corruption a larger bureaucracy makes private production more profitable by reducing resources allocated to private rent seeking and the resulting externality further improves the relative rewards to productive activity in general the equilibrium size of the bureaucracy is not optimal one resulting implication is that for the equilibrium with a smaller bureaucracy society would benefit by increasing the size of bureaucracy despite the fact that bureaucrats are corrupt many believe that the size of government is an important factor for determining economic performance however hall and jones 1999 p 111 argue that the characteristics of an economy such as the size of government should better be thought as outcomes rather than determinants

currency exchange in a random search model this paper investigates foreign exchange trading a phenomenon that typically accompanies international trade a search theoretic general equilibrium approach is adopted to study a two country two currency model for some parameter values of the model there exist some pure strategy equilibria in which commodity currency trade is conducted primarily through local currency and in which there is active currency currency exchange the coexistence of valued foreign currency and its local non acceptability conforms largely with the country specific cash in advance constraint that is often assumed exogenously in international finance literature

asset prices and liquidity in an exchange economy i develop an asset pricing model in which financial assets are valued for their liquidity the extent to which they are useful in facilitating exchange as well as for being claims to streams of consumption goods the implications for average asset returns the equity premium puzzle and the risk free rate puzzle are explored in a version of the model that nests the work of mehra and prescott 1985

the political economy of bitcoin i introduction on october 14 2013 baidu a web services company that runs the largest search engine in china began accepting bitcoin this single action opened the bitcoin network to roughly 570 million internet users in china and prompted other internet companies to consider the cryptocurrency more seriously the closing price of bitcoin which averaged just 124 over the 2 week period prior to the announcement increased to 170 over the 2 week period following the announcement 1 as the demand for bitcoin increased the authorities took notice the people s bank of china issued a statement on december 5 2013 prohibiting financial institutions and payment companies from buying selling quoting prices in or insuring products linked to bitcoin baidu stopped accepting bitcoin the very next day china is not the only user although the network of bitcoin users is relatively small at present and economists are for the most part skeptical that bitcoin will ever gain widespread acceptance the rapid growth of the bitcoin network has prompted some governments to ban or discourage the use of bitcoin 2 government officials seem to worry that bitcoin which offers a secure and quasi anonymous way to make digital payments will be used for illicit transactions and will impede the administration of monetary policy or raising revenues in some important respects the legal issues surrounding bitcoin echo older debates the idea that governments issue money and declare what qualifies as legal tender is an ancient notion middlebrook and hughes 2014 848 explain the history of regulating money and legal tender suggests that it is not likely that governments will surrender their privileges to regulate cryptocurrency issuers exchanges administrators or users can a government successfully prevent bitcoin transactions in what follows we consider whether government transactions policy would eliminate the use of bitcoin or simply relegate its use to areas effectively beyond the reach of government e g black markets small value exchange etc using a monetary model with endogenous search and random consumption preferences developed by hogan and luther 2014 we articulate the conditions under which a government issued currency and bitcoin might coexist as well as the conditions under which one or neither of the different forms of money circulate then we impose a government transactions policy whereby those agents controlled by the government refuse to accept bitcoin as payment and examine the effects of this policy on the circulation of bitcoin the model employed herein combines insights from kiyotaki and wright 1993 in which agents are matched randomly for trade and corbae et al 2003 in which agents deliberately choose with whom to trade agents in the model deliberately choose with whom to trade but are then subject to random consumption preferences one way to think of this assumption is that agents who wish to consume arrive at a place where they would like to make a purchase but might decide not to buy anything although the decision to buy is random the choice of where to shop is not 3 allowing agents to choose their trading partners means that some transactions might exist beyond the reach of government the use of a government transactions policy follows from aiyagari and wallace 1997 and li and wright 1998 others have used government transactions policies to consider the implications of competing money assets however our analysis differs from previous works in important ways for example lotz and rocheteau 2002 consider whether a government transactions policy can support the launch of a new currency they use a random matching model and only consider a transactions policy that compels agents to hold government issued money similarly waller and curtis 2003 consider the use of government transactions policy in the context of competing international currencies

noncooperative regulation of a nonlocalized externality with a nonlocalized pollution externality different groups bear the costs and benefits of abatement in the case of acid rain these groups are respectively consumers in the midwest and pollutees in the northeast these groups have conflicting interests that are represented respectively by a public utilities commission and an environmental regulator we analyze a model in which the environmental protection agency acting as a von stackelberg leader regulates pollution and the public utility commission regulates the price for a monopolist that has private information about the effectiveness of its abatement alternatives we characterize a noncooperative equilibrium and compare it with a cooperative equilibrium a nonlocalized pollution externality poses special regulatory problems when the benefits and the costs of abatement are borne by distinct groups whose interests are represented by different regulatory agencies a relevant example is acid rain which is believed to be caused in part by coal fired electricity generating plants these emit sulfur dioxide and nitrogen oxide which upon contact with moisture in the atmosphere form acid that falls with rain measures to reduce these emissions are of concern to the residents of the states in which the coal fired generating plants are located because abatement costs increase the prices they pay for electricity a number of plans have been proposed for distributing those costs more broadly but the costs of reducing the emissions of generating plants located in ohio will likely be borne in large part by ohio consumers and utilities while the benefits from abatement will largely be realized by the residents of the northeast and canada the control of a nonlocalized externality such as acid rain raises the issue of the relationship between the environmental regulator the environmental protection agency epa and the public utility commission the former is responsible for achieving an acceptable balance between the damage from pollution and the cost of abatement the latter is responsible for pricing electricity on the basis of the costs of production and pollution control one possibility is that cooperation between the two regulators leads to the joint regulation of emissions and prices cooperation would internalize the conflicting interests and mandates of the regulators but the distributive consequences of the regulatory alternatives inhibit cooperation the public utility commission for example has an interest in avoiding abate

a fundamental theory of exchange rates and direct currency trades in this paper we construct a two country search model to determine the nominal exchange rate between two fiat monies our model allows agents to use any currency to trade for goods in all countries however search frictions restrict agents opportunities for instantaneous arbitrage and hence make the nominal exchange rate determinate the nominal exchange rate depends on the two countries economic fundamentals including the stocks and growth rates of the two monies direct exchanges between currencies are essential and they imply a nominal exchange rate that is different from the relative price between the two currencies in the goods markets there are persistent violations of the law of one price and purchasing power parity in equilibrium despite the fact that prices are perfectly flexible and all goods are tradeable between countries nominal and real exchange rates can move together in the steady state in response to money growth shocks

viewpoint a microfoundation of monetary economics in this lecture i explain what the microfoundations of money are about and why they are necessary for monetary economics then i review recent developments of a particular microfoundation of money commonly known as the search theory of money finally i outline some unresolved issues dans cette presentation l auteur explique ce que sont les microfondations de la monnaie et pourquoi elles sont necessaires a l economie monetaire ensuite il passe en revue certains developpements recents d une microfondation particuliere de la monnaie connue sous le nom de theorie de la recherche de la monnaie enfin l auteur fait le tour d un ensemble de problemes qui restent sans solution pour le moment

introducing a new currency government policy and prices abstract the aim of this article is to study the introduction of a new fiat currency within a dual currency divisible goods search model the government using price control or legal tender laws can affect the equilibrium price levels of two domestic currencies with the goal of driving the old currency out of circulation and replacing it with a new one it is shown that some equilibrium solutions that exist in a laissez faire environment disappear with government monitoring additionally when the old currency is made illegal its equilibrium value is affected differently by public measures such as conversion tax and redistribution policies finally if the enforcement power of legal tender laws is strong enough the old currency cannot be more valuable than the new one and the probability that it changes hands in trade when introducing lotteries cannot be smaller than one

on money as a medium of exchange we analyze economies in which individuals specialize in consumption and production and meet randomly over time in a way that implies that trade must be bilateral and quid pro quo nash equilibria in trading strategies are characterized certain goods emerge endogenously as media of exchange or commodity money depending both on their intrinsic properties and on extrinsic beliefs there are also equilibria with genuine fiat currency circulating as the general medium of exchange we find that equilibria are not generally pareto optimal and that introducing fiat currency into a commodity money economy may unambiguously improve welfare velocity acceptability and liquidity are discussed

the evolution of monetary equilibrium abstract the hahn problem is that even if a monetary equilibrium with valued fiat money exists in general equilibrium a nonmonetary equilibrium with a zero price on money generally also exists why should we expect the former over the latter here i consider the preferences that will survive repeated trading in an exchange economy where agents compete in biological fitness with unobservable preferences and positive assortativity in matching evolutionarily stable preferences implement the competitive equilibrium that maximizes the sum of agents fitnesses in a standard bewley townsend model this implies selection of the monetary over the nonmonetary equilibrium and also implies the survival of agents with money in the utility function trust in fiat money is only a recent development and even today such faith is hardly universal cass and shell 1980

open market operations abstract in an open market operation the central bank swaps currency for bonds we show how injecting money in this way is different from transfers the way policy is usually formulated the model captures liquidity explicitly by modeling the roles of assets in frictional exchange under various specifications for market structure and the acceptability or pledgeability of assets we discuss implications for the fisher and quantity equations the possibility of negative nominal yields liquidity traps and market segmentation when liquidity is endogenized using information theory multiple equilibria emerge with different policy predictions interest on reserves and quantitative easing are discussed

the influence of chinese environmental regulation on corporation innovation and competitiveness abstract according to porter hypothesis appropriate environmental regulation can promote corporation innovation the innovation will even offset the corporation loss caused by environmental regulation and improve corporation competitiveness in order to explore the porter hypothesis practical situation in china this paper does an empirical study to explore this mechanism by using chinese pollution intensive corporations panel data samples during 2007 2012 results show that the implementation of flexible control policies has achieved initial success environmental regulation has significant positive effects on corporation s innovation but the fact of its weak effects also partly explains why environmental regulation still has negative effects on corporation competitiveness even it is insignificant from the point of regional differences east and middle regions have weak but not strong porter hypothesis phenomenon while that of the west region is not significant return on assets roa and gross domestic product gdp in the east region are relatively higher which is not based on high energy consumption and environmental pollution but due to the high transformation rate of research and development expenditure r d to roa for the middle region even it shows signs of the strong porter hypothesis but due to the fact that government gives fiscal subsidies and tax returns to companies to cover the cost from environmental regulation it only has the weak but not strong porter hypothesis phenomenon since this mechanism is not consistent with that of porter hypothesis

existence of steady states with positive consumption in the kiyotaki wright model we prove the general existence of steady states with positive consumption in an n goods and fiat money version of the kiyotaki wright model by admitting mixed strategies we also show that there always exists a steady state in which everyone accepts a least costly to store object in particular if fiat money is one such object then there always exists a monetary steady state we also establish some other properties of steady states and comment on the relationship between steady states and incentive feasible allocations

nominal bonds and interest rates in this article i integrate the microfoundation of monetary theory with the model of limited participation to analyze the competition between nominal bonds and money the market for government nominal bonds is centralized and walrasian whereas the goods market is modeled as random matches the government imposes a legal restriction that requires all government goods to be purchased with money but not with bonds by contrast private agents can exchange between themselves with both money and bonds i show that an arbitrarily small legal restriction is sufficient to prevent matured bonds from being a medium of exchange i also analyze the effects of monetary policy with and without the legal restriction some of those effects differ significantly from traditional monetary models

pollution standards vs charges under uncertainty conventional analysis of pollution control policy under uncertainty does not properly account for the potential cost effectiveness difference between standards and charges thus drawing misleading conclusions for the case of inefficient standards correcting for this anomaly the following conclusions can be drawn when uncertainty involves the position of the marginal damage cost schedule rather than policy indifference a charge is always superior to an inefficient standard when uncertainty is about the position of the marginal control cost schedule policy indifference may occur but if it does it must be the case that the slope of marginal damage cost exceeds that of marginal control cost

government transaction policy the medium of exchange and welfare abstract policy regarding what the government accepts in transactions is embedded in a version of the kiyotaki wright model of media of exchange in an example with two goods and one fiat money the policies that are consistent with fiat money as the unique medium of exchange are identified these policies have the government favoring fiat money in its transactions a benefit and a cost accompany any such policy the benefit is that a worse nonmonetary steady state is eliminated the cost is that a better monetary steady state is eliminated journal of economic literatureclassification number e40

the fed response to equity prices and inflation a number of researchers and market observers hold that the dramatic increase during the 1990 s and subsequent decline in u s stock prices were due to non fundamental factors such as irrational expectations or bubbles if this view is correct policymakers may be concerned with the real macroeconomic consequences of the stock market run up these might include overconsumption due to a perceived wealth effect or too much physical investment due to a lower financing cost of capital following this reasoning the federal reserve could raise the fed funds target rate to offset perceived non fundamental stock price increases this policy stance may seem particularly appealing if the fed s primary target low and stable inflation is already being achieved this paper studies how federal reserve interestrate policy from 1979 4 onward responds to an aggregate measure of stock market activity under high versus low inflation most existing research makes no distinction between policy across the highand low inflation times of the past 24 years two conventional findings of this existing research are that the federal reserve i raises the short term real interest rate in response to inflation and ii does not change policy in response to equity price movements 1

performance versus design standards in the regulation of pollution abstract this paper presents a model of pollution regulation in an oligopolistic market two forms of regulation are considered performance standards which regulate pollution directly by an upper limit on emissions and design standards which regulate pollution indirectly by a minimum usage requirement of an enissions control input equilibria under each regulatory regime are characterized a welfare analysis reveals that performance standards are preferred to design standards if the objective is minimization of emissions plus pollution damage costs however the comparison is indeterminate if the regulator s objective is total surplus less pollution damage an equivalence between emissions taxes and performance standards is established so the above welfare comparisons also apply to emissions taxes versus design standards

inventory accumulation in a search based monetary economy abstract this paper explores the implications of a search based model of money for the linkage between steady state inventory accumulation inflation and welfare because individual traders in the search economy do not internalize the positive effects inventory accumulation and search effort have on the aggregate economy they are too low relative to social efficiency it is established that a tax on money balances can alleviate these externalities and improve aggregate welfare it does so by i directly increasing the optimal search intensity choices of the individual trader and ii stimulating the accumulation of inventories through a mundeil tobin type effect an increase in the equilibrium level of inventory accumulation also positively affects search effort the implications for optimal monetary policy are discussed

a unified framework for monetary theory and policy analysis search theoretic models of monetary exchange are based on explicit descriptions of the frictions that make money essential however tractable versions of these models typically make strong assumptions that render them ill suited for monetary policy analysis we propose a new framework based on explicit micro foundations within which macro policy can be studied the framework is analytically tractable and easily quantifiable we calibrate the model to standard observations and use it to measure the cost of inflation we find that going from 10 percent to 0 percent inflation is worth between 3 and 5 percent of consumption much higher than previous estimates

debt enforcement and the value of money this paper presents a framework in which fiat money has value in equilibrium even though a risk free higher return asset can be equally used as a medium of exchange in a limited commitment environment agents may prefer to borrow a low return asset because that results in a larger borrowing capacity thus a monetary equilibrium in which money is dominated in rate of return exists

a model of bureaucracy and corruption we analyze bureaucracy and corruption in a market with decentralized exchange and lemons exchange is modeled as a sequence of bilateral random matches agents have private information about the quality of goods they produce and can supplement trade with socially inefficient bribes bureaucracy is modeled as a group of agents who enjoy centralized production and consumption transaction patterns between the bureaucracy and the private sector are fully endogenous centralized production and consumption in the bureaucracy give rise to low power incentives for the individual bureaucrats as a result private agents might bribe bureaucrats whereas they do not bribe each other an equilibrium with corruption and an equilibrium without corruption can coexist we discuss some welfare implications of the model

a contribution to the pure theory of money abstract this article analyzes a general equilibrium model with search frictions and differentiated commodities because of the many differentiated commodities barter is difficult in that it requires a double coincidence of wants and this provides a medium of exchange role for fiat currency we prove the existence of equilibrium with valued fiat money and show it is robust to certain changes in the environment rate of return dominance liquidity and the welfare implications of fiat money are discussed

money and prices a model of search and bargaining abstract this paper makes commodities divisible and incorporates bargaining into the search theoretic model of money to determine the purchasing power of money or price it is shown that two monetary equilibria always coexist where fiat money is universally accepted the two equilibria differ in price output welfare and the velocity of money sunspot monetary equilibria exist in which money is universally accepted in all states of the economy multiplicity has novel implications on the effectiveness of currency substitution and exchange market intervention journal of economic literature classification numbers c78 e40

on the role of tax subsidy scheme in money search models this article investigates the roles of policy in search models with divisible money recently real indeterminacy of stationary equilibria has been found in both specific and general search models with divisible money thus if we assume the divisibility of money it would be quite difficult to make accurate predictions of the effects of simple monetary policies therefore in this article we introduce a certain tax subsidy scheme and show that this is effective in selecting a determinate efficient equilibrium in other words for a given efficient equilibrium and for any real number 0 a certain tax subsidy scheme induces a locally determinate equilibrium within the neighborhood of the given equilibrium moreover the size of the tax subsidy can be arbitrarily small

competing currencies in the laboratory we investigate competition between two intrinsically worthless currencies as a result of decentralized interactions between human subjects we design a laboratory experiment based on a simple two country two currency search model to study factors that affect circulation patterns and equilibrium selection

optimal long run inflation with occasionally binding financial constraints abstract this paper studies the optimal long run inflation rate in a simple new keynesian model with occasionally binding collateral constraints that intermediate good firms face on hiring labor the paper finds that the optimal long run annual inflation rate is around 1 5 if the economy is hit by a total factor productivity tfp shock and nearly 2 5 if the economy is subject to a markup shock the shadow value of the collateral constraint is akin to an endogenous cost push shock differently from usual cost push shocks however this shock is asymmetric as it takes non negative values only since the mean of this asymmetric endogenous cost push shock is positive inflation is also positive on average in addition a binding collateral constraint resembles a time varying tax on labor which the monetary authority can smooth by setting a positive inflation rate more generally the basic result is related to standard ramsey theory in that optimal policy smoothes distortions over time

dynamics cycles and sunspot equilibria in genuinely dynamic fundamentally disaggregative models of money abstract this paper pursues a line of cass and shell who advocate monetary models that are genuinely dynamic and fundamentally disaggregative and incorporate diversity among households and variety among commodities recent search theoretic models fit this description we show that like overlapping generations models search models generate interesting dynamic equilibria including cycles chaos and sunspot equilibria this helps us understand how alternative models are related and lends support to the notion that endogenous dynamics and uncertainty matter perhaps especially in monetary economies we also suggest such equilibria in search models may be more empirically relevant than in some other models

re entitlement effects with duration dependent unemployment insurance in a stochastic matching equilibrium in the context of a standard equilibrium matching framework this paper considers how a duration dependent unemployment insurance ui system affects the dynamics of unemployment and wages in an economy subject to stochastic job destruction shocks it establishes that re entitlement effects induced by a finite duration ui program generate intertemporal transfers from firms that hire in future booms to firms that hire in current recessions these transfers imply a net hiring subsidy in recessions which stabilizes unemployment levels over the cycle

government transaction policy media of exchange and prices abstract we study government transaction policies in search theoretic models of money we model government as a subset of agents who are subject to the same random matching technology and other constraints as private agents but who behave in an exogenous way regarding which objects they accept in trade and at what price the objective is to see how these policies affect private agents strategies and hence the set of equilibria we analyze how the effects depend on factors like the size of government the intrinsic properties of money and the availability and efficacy of substitutes like barter or foreign currency journal of economic literature classification numbers c78 e31 e42

the transition from barter to fiat money how did it become possible to exchange apparently valueless pieces of paper for goods this paper provides an equilibrium account of the transition between barter and fiat money regimes the explanation relies on the intervention of a self interested government that must be able to promise credibly to limit the issue of money to achieve credibility the government must offset the benefits of seigniorage by internalizing some of the macroeconomic externalities generated by the issue of fiat money the government s patience and the extent of its involvement in the economy are key determinants of whether the transition can be accomplished copyright 1995 by american economic association

optimal monetary policy and downward nominal wage rigidity in frictional labor markets empirical evidence suggests that nominal wages in the u s are downwardly rigid this paper studies the optimal long run inflation rate in a labor search and matching framework under the presence of downward nominal wage rigidity dnwr in this environment optimal monetary policy targets a positive inflation rate the annual long run inflation rate for the u s is around 2 percent positive inflation greases the wheels of the labor market by facilitating real wage adjustments and hence it eases job creation and prevents excessive increase in unemployment following recessionary shocks these findings are related to standard ramsey theory of wedge smoothing by following a positive inflation policy under sticky prices the monetary authority manages to reduce the volatility and the size of the intertemporal distortion significantly the intertemporal wedge is completely smoothed when prices are fully flexible since the optimal long run inflation rate predicted by this study is considerably higher than in otherwise neoclassical labor markets the nature of the labor market in which dnwr is studied can be relevant for policy recommendations

asymmetric government transaction policies and currencies substitutability abstract when two countries are identical and perfectly integrated symmetric government transaction policies are necessary and sufficient for perfect substitutability between currencies when government transaction policies are symmetric and integration is not perfect the national money is more valued within borders

liquidity a new monetarist perspective this essay surveys the new monetarist approach to liquidity work in this literature strives for empirical and policy relevance plus rigorous foundations questions include what is liquidity is money essential in achieving desirable outcomes which objects can or should serve in this capacity when can asset prices differ from fundamentals what are the functions of commitment and collateral in credit markets how does money interact with credit and intermediation what can and should monetary policy do the research summarized emphasizes the micro structure of frictional transactions and studies how institutions like monetary exchange credit arrangements or intermediation facilitate the exchange process

the impact of public scrutiny on corporate philanthropy this paper proposes that a corporation s vulnerability to public scrutiny drives its corporate giving the hypothesis that companies donate for strategic motives is tested against the alternative that they do so for altruistic reasons court cases and news articles were selected as proxies for public scrutiny macroeconomic variables were used to gauge the level of public charitable need and test for altruism through examining the philanthropic behavior of 40 fortune 500 companies over 7 years this paper finds that companies are strategic and altruistic in their giving

voluntary environmental agreements good or bad news for environmental protection abstract there has been growing interest in the use of voluntary agreements vas as an environmental policy tool this article uses a simple model to determine whether vas are likely to lead to efficient environmental protection we consider cases where polluters are induced to participate either by a background threat of mandatory controls the stick approach or by cost sharing subsidies the carrot approach the results suggest that the overall impact on environmental quality could be positive or negative depending on a number of factors including the allocation of bargaining power the magnitude of the background threat and the social cost of funds