money and capital abstract the effects of money anticipated inflation on capital formation is a classic issue in macroeconomics previous papers adopt reduced form approaches putting money in the utility function or imposing cash in advance but using otherwise frictionless models we follow instead a literature that tries to be explicit about the frictions making money essential this introduces new elements including a two sector structure with centralized and decentralized markets stochastic trading opportunities and bargaining these elements matter quantitatively and numerical results differ from findings in the reduced form literature the analysis also reduces a gap between microfounded monetary economics and mainstream macro

the inflation tax in a real business cycle model money is incorporated into a real business cycle model using a cash in advance constraint the model economy is used to analyze whether the business cycle is different in high inflation and low inflation economies and to analyze the impact of variability in the growth rate of money in addition the welfare cost of the inflation tax is measured and the steady state properties of high and low inflation economies are compared

trade credit in a monetary economy abstract this paper examines the importance of financial and technological stochastic trends in the context of a stochastic dynamic general equilibrium monetary economy with multiple means of payment in contrast to earlier empirical work we find support for both a long run substitution condition between money trade credit and interest rates as well as a long run transactions demand for alternative payments media consistent with real business cycle frameworks

the role of search frictions in the long run relationships between inflation unemployment and capital abstract this paper explores the long run relationships between inflation unemployment and capital accumulation by proposing a model with search frictions in both goods and labor markets this framework allows us to identify a negative extensive margin effect of inflation on the number of firms demanding capital and a positive intensive margin effect of inflation on the capital demanded per firm the two effects together generate a hump shaped relationship between long run inflation and aggregate capital these results are consistent with our empirical evidence from a cross section of 76 countries which suggests a non monotonic relationship between inflation and investment to gdp ratio in the long run our calibrated results are also consistent with empirical findings from the u s data on the effect of inflation on capital stock unemployment and the real interest rates

inflation uncertainty and growth in a cash in advance economy abstract this paper analyzes the effects of inflation variability on economic growth in a model where money is introduced via a cash in advance constraint in this setting we find that inflation adversely affects long run growth even when the cash in advance constraint applies only to consumption at the same time we find that inflation and growth are positively related in the short run furthermore variability increases average growth through a precautionary savings motive since inflation and inflation variability tend to be highly correlated the presence of uncertainty attenuates the negative long run relationship between inflation and real growth it also provides a partial rationale for the apparent lack of robustness in cross country regressions of growth and inflation

comparing feed in tariff incentives in taiwan and germany abstract the current development of clean energy in taiwan is in the embryonic stage even though in recent times taiwan s development of renewable energy has emphasized wind power and photovoltaic power current statistics show they supply only a small portion of total national power needs and that wind power and solar power are still in development in order to promote the growth of clean energy it is necessary to compare the support mechanisms of developing clean energy in different countries the success of implementing clear energy in germany is often followed by other countries including taiwan thus this paper explores the german experience of implementing a feed in tariff hereafter fit and compared it with the fit system in taiwan to illustrate the differences and similarities between these countries the results could be used as a reference for the future modification of the fit system in taiwan

financial intermediation and endogenous growth an endogenous growth model with multiple assets is developed agents who face random future liquidity needs accumulate capital and a liquid but unproductive asset the effects of introducing financial intermediation into this environment are considered conditions are provided under which the introduction of intermediaries shifts the composition of savings toward capital causing intermediation to be growth promoting in addition intermediaries generally reduce socially unnecessary capital liquidation again tending to promote growth

occupation induced status social norms and economic growth abstract we analyse a monetary growth model where entrepreneurs borrow funds to invest in projects that produce capital goods in addition to their varying pecuniary returns different projects also vary with respect to the status they confer to the entrepreneurs who operate them we show that i social status increases the growth rate but this effect is mitigated by a social norm that inversely links overall levels of employment in the high return project with the status conferred to it ii the combined effect of social status and inflation is a source of transitional dynamics in an environment where such dynamics would not emerge if considerations of occupational prestige were absent iii when the social norm affects social status the economy s dynamics may be manifested in the form of endogenous volatility iv the presence and characteristics of social status can generate a negative correlation between volatility and growth

production based asset pricing in monetary economies with transactions costs a general equilibrium asset pricing model for a monetary economy with capital accumulation fin and endogenous financial structure is constructed in which there is a meaningful between monetary policy inflation taxes investment decisions and private financial arrangements a differential stochastic liquidity premium applies in equilibrium to consumption and investment purchases a production version of the capital asset pricing model is constructed the presence of endogenous financial arrangements is shown to play a key role in explaining potential distortions in the equilibrium risk premia associated with technological uncertainty numerical work indicates 1 that return anomalies are potentially large and 2 that the model has implications for empirical implementations for the partial equilibrium production based asset pricing models such as cochrane 1991 1996 and braun 1993 copyright 1996 by the london school of economics and political science

money and crime in a cash in advance model a cash in advance model in which holding money is risky is constructed to study the coexistence of multiple means of payment and monetary policy implications in steady state equilibrium the marginal rate of substitution of cash goods for credit goods depends on the crime rate as well as the nominal interest rate credit may be in use although the return on money is not positive with theft a money injection reduces the crime rate and makes cash more preferable for a greater variety of goods inflation improves welfare however without theft inflation makes credit more preferable and decreases welfare in general the friedman rule is not optimal

trickle down consumption financial deregulation inequality and indebtedness over the last thirty years the u s experienced a surge in income inequality coupled with increasing levels of borrowing we model an olg economy populated by two types of household that care about how their consumption compares to that of their peers in this framework individual debt to income ratios decrease with income increases in consumption of rich households lead to increases in consumption of the rest and aggregate borrowing increases with income inequality we calibrate our model to evaluate the welfare implications of the process of nancial liberalization that began in the 1980s our analysis suggests that some of the nancial developments that lead to the recent expansion of credit may have decreased rather than increased welfare

a revised tobin effect from inflation relative input price and capital ratio realignments usa and uk 1959 1999 the paper studies the realignments induced by inflation within an endogenous growth monetary economy accelerating inflation raises the ratio of the real wage to the real interest rate and so raises the use of physical capital relative to human capital across all sectors we find cointegration evidence for the us and uk economies consistent with a general equilibrium tobin type effect of inflation on input prices and capital intensity even while the growth rate of output is reduced by inflation

computing multi period information constrained optima this paper presents a detailed theoretical derivation and justification for methods used to compute solutions to a multi period including infinite period continuum agent unobservedeffort economy actual solutions are displayed illustrating cross sectional variability in consumption and labour effort in the population at a point in time and variability for a typical individual over time the optimal tradeoff between insurance and incentives is explored and the issue of excess variability is addressed by consideration of the analogue full information economy and various restricted contracting regimes

is quantity theory still alive this paper investigates whether the quantity theory of money is still alive we argue that it is but that the slippage is not negligible for countries with low inflation the relationship between average inflation and the growth rate of money is tenuous at best a correction for variation in output growth and the opportunity cost of money using theory implied elasticities helps explain the slippage for the period since 1990 inflation targeting at low rates of inflation makes it harder to establish the long run relationship between monetary growth and inflation

money and growth an alternative approach this paper takes an alternative approach to the topic of money and growth by developing a model in which the effects of sustained capital accumulation on an evolving system of payments in addition to the conventional effects of sustained inflation on growth are examined while the effects of inflation on growth are small the effects of growth on the monetary system are substantial the results are consistent with ideas about money and growth contained in work that predates that of james tobin and miguel sidrauski as well as with evidence that money and asset demands vary systematically within economies as they develop copyright 1994 by american economic association

assessment of the feed in tariff mechanism for renewable energies in taiwan abstract due to taiwan s lack of natural resources dependence on imported energy and pursuit of sustainable development renewable energies are extremely important for taiwan s future energy supply since taiwan s feed in tariff fit is still in its initial stage one must examine whether the current system is compatible with a well designed fit scheme this study examines the main features of taiwan s fit system and assesses design options using several criteria additionally one of the most important elements of a fit scheme namely a tariff system is discussed taiwan s fit scheme has the design options required by well functioning fits and the guaranteed return tariff system coincides with the spirit underlying leading global fits however many issues such as setting goals by stages refinement of the tariff calculation methodology and elimination of other non economic barriers must be addressed to achieve future developmental goals and green industry growth

on the superneutrality of money in a stochastic dynamic macroeconomic model abstract this paper explores the robustness of the superneutrality of money result to the introduction of uncertainty while qualitatively superneutrality fails to obtain in our model quantitatively the observed tobin effect is insignificant the equilibrium time paths of real variables are nearly unaffected by changes in the money growth rule we argue that our conclusions reinforce the theoretical case for superneutrality

endogenous multiple currencies in this paper i study a model in which households can decide which currency or currencies they will accept i provide a simple set of assumptions that are sufficient to prevent the indeterminacy of the exchange rate in the sense of kareken and wallace 1981 in a two country model stable equilibria have either a single currency or national currencies i also show currency substitution occurs as an endogenous response to high growth in the stock of a currency

money and credit as means of payment abstract a stochastic economic environment is presented in which the mix of cash and resource costly credit used as means of payment is endogenous for reasonable values of the credit cost parameter velocity can be quite variable and sensitive to the nominal interest rate those parameter values also generate larger welfare costs of inflation than have been found previously and a sizable impact of inflation on real interest rates

research note a dynamic programming approach to customer relationship pricing the practice of offering discounts to prospective customers represents a rudimentary form of using transaction history measures to customize the marketing mix furthermore the proliferation of powerful customer relationship management crm systems is providing the data and the communications channels necessary to extend this type of pricing strategy into true dynamic marketing policies that adjust pricing as customer relationships evolve in this paper we describe a dynamic programming based approach to creating optimal relationship pricing policies the methodology has two main components the first component is a latent class logit model that is used to model customer buying behavior the second component is a dynamic optimization procedure that computes profit maximizing price paths the methodology is illustrated using subscriber data provided by a large metropolitan newspaper the empirical results provide support for the common managerial practice of offering discounts to new customers however in contrast to current practice the results suggest the use of a series of decreasing discounts based on the length of customer tenure rather than a single steep discount for first time purchasers the dynamic programming dp methodology also represents an important approach to calculating customer value cv specifically the dp framework allows the calculation of cv to be an explicit function of marketing policies and customer status as such this method for calculating cv accounts for the value of managerial flexibility and improves upon existing methods that do not model revenue and attrition rates as functions of marketing variables

the welfare cost of bank capital requirements abstract capital requirements are the cornerstone of modern bank regulation yet little is known about their welfare cost this paper measures this cost and finds that it is surprisingly large i present a simple framework which embeds the role of liquidity creating banks in an otherwise standard general equilibrium growth model a capital requirement limits the moral hazard on the part of banks that arises due to deposit insurance however this capital requirement is also costly because it reduces the ability of banks to create liquidity the key insight is that equilibrium asset returns reveal the strength of households preferences for liquidity and this allows for the derivation of a simple formula for the welfare cost of capital requirements that is a function of observable variables only using us data the welfare cost of current capital adequacy regulation is found to be equivalent to a permanent loss in consumption of between 0 1 and 1

optimal monetary policy and economic growth abstract a question at the center of many analyses of optimal monetary policy is why do central banks never implement the friedman rule to the list of answers to this question we add neoclassical production specifically the tobin effect as one possible explanation to that end we study an overlapping generations economy with capital where limited communication and stochastic relocation create an endogenous transactions role for fiat money we assume a production function with a knowledge externality romer style that nests economies with endogenous growth ak form and those with no long run growth the diamond model the tobin effect is shown to be always operative under crra preferences a mild degree of social increasing returns is sufficient but not necessary for some positive inflation to dominate zero inflation and for the friedman rule to be sub optimal irrespective of the degree of risk aversion

money and finance with costly commitment abstract we develop a variant of townsend s turnpike model where the trading friction is related to a commitment problem rather than spatial separation alone specifically expenditure on financial services is necessary to ensure commitment when commitment is costless the equilibrium allocation is equivalent to that from an arrow sequential markets equilibrium when commitment is prohibitively expensive the allocation is similar to the townsend equilibrium we use numerical examples to study the consequences of costly commitment for co existence of money and credit asset pricing welfare implications of currency and variations in its growth rate and the relationships between income and financial development

existence and uniqueness of equilibrium in distorted dynamic economies with capital and labor abstract in this paper we provide a set of sufficient conditions under which recursive competitive equilibrium exists and is unique for a large class of distorted dynamic equilibrium models with capital and elastic labor supply we develop a lattice based approach to the problem the class of economies for which we are able to obtain our existence and uniqueness result is considerably larger than those considered in previous work we conclude by applying the new results to some important examples of monetary economies often used in applied work journal of economic literature classification numbers c62 d51 d90 e10

the real bills doctrine versus the quantity theory a reconsideration two competing monetary policy prescriptions are analyzed within the context of overlapping generations models the real bills prescription is for unfettered private intermediation or central bank operations designed to produce the effects of such intermediation the quantity theory prescription in contrast is for restrictions on private intermediation designed to separate money from credit although our models are consistent with quantity theory predictions about money supply and price level behavior under these two policy prescriptions the models imply that the quantity theory prescription is not pareto optimal and the real bills prescription is

mailing decisions in the catalog sales industry catalog sales are among the fastest growing businesses in the u s the most important asset a company in this industry has is its list of customers called the house list building a house list is expensive since the response rate of names from rental lists is low cash management therefore plays a central role in this capital intensive business this paper studies optimal mailing policies in the catalog sales industry when there is limited access to capital we consider a stochastic environment given by the random responses of customers and a dynamic evolution of the house list given the size of real problems it is impossible to compute the optimal solutions we therefore develop a heuristic based on the optimal solutions of simplified versions of the problem the performance of this heuristic is evaluated by comparing its outcome with an upper bound derived for the original problem computational experiments show that it behaves satisfactorily the methodology presented permits the evaluation of potential catalog ventures thus proving useful to entrepreneurs in this industry

how to compute optimal catalog mailing decisions we develop estimate and test a response model of order timing and order volume decisions of catalog customers and derive a bayes rule for optimal mailing strategies the model integrates the when and how much components of the response incorporates the mailing decision of the firm and uses a bayesian framework to determine the optimal mailing rule for each catalog customer the bayes rule we propose for optimal mailing strategy allows for a broad set of objectives to be realized across the time horizon such as profit maximization customer retention and utility maximization with or without risk aversion we find that optimizing the objective function over multiple periods as opposed to a single period leads to higher expected profits and expected utility our results indicate that the cataloguer is well advised to send fewer catalogs than its current practice in order to maximize expected profits and utility

financial development and economic growth evidence from panel unit root and cointegration tests abstract in this paper we investigate the long run relationship between financial depth and economic growth trying to utilize the data in the most efficient manner via panel unit root tests and panel cointegration analysis in addition we use threshold cointegration tests and dynamic panel data estimation for a panel based vector error correction model the long run relationship is estimated using fully modified ols for 10 developing countries the empirical results provide clear support for the hypothesis that there is a single equilibrium relation between financial depth growth and ancillary variables and that the only cointegrating relation implies unidirectional causality from financial depth to growth

optimal fiscal and monetary policy in an economy without capital abstract this paper is concerned with the structure and time consistency of optimal fiscal and monetary policy in an economy without capital in a dynamic context optimal taxation means distributing tax distortions over time in a welfare maximizing way for a barter economy our main finding is that with debt commitments of sufficiently rich maturity structure an optimal policy if one exists is time consistent in a monetary economy the idea of optimal taxation must be broadened to include an inflation tax and we find that time consistency does not carry over an optimal inflation tax requires commitment by rules in a sense that has no counterpart in the dynamic theory of ordinary excise taxes the reason time consistency fails in a monetary economy is that nominal assets should from a welfare maximizing point of view always be taxed away via an immediate inflation in a kind of capital levy this emerges as a new possibility when money is introduced into an economy without capital

estimating the co2 abatement cost substitute price of avoiding co2 emission spae by renewable energy s feed in tariff in selected countries abstract many renewable energy policies are looking into new incentives to absorb investments by targeting abating co 2 emission and fixing energy price fluctuation feed in tariff fit is a policy for rebating the amount of generated renewable electricity to investor fit is also defined as a co 2 mitigation policy in electricity generation from renewable sources this paper presents a cost benefit survey that estimates the real produced carbon dioxide for electricity generation in selected countries this study introduces the substitute price of avoiding co 2 emission as an indicator the new indicator shows how much is paid for avoiding co 2 by each selected countries through the fit policy for renewable technologies the amount calculated for solar energy is taken as a case in this paper the result confirms that the fit policy reasonably works for solar energy in absorbing investment however the fit policy claims a large portion of liquidity compared with other approaches hence makes this mechanism inept as a co 2 mitigation policy

financial intermediation and delegated monitoring this paper develops a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders it presents a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary diversification within an intermediary serves to reduce these costs even in a risk neutral economy the paper presents some more general analysis of the effect of diversification on resolving incentive problems in the environment assumed in the model debt contracts with costly bankruptcy are shown to be optimal the analysis has implications for the portfolio structure and capital structure of intermediaries

money and credit with limited commitment and theft we study the interplay among imperfect memory limited commitment and theft in an environment that can support monetary exchange and credit imperfect memory makes money useful but it also permits theft to go undetected and therefore provides lucrative opportunities for thieves limited commitment constrains credit arrangements and the constraints tend to tighten with imperfect memory as this mitigates punishment for bad behavior in the credit market theft matters for optimal monetary policy but at the optimum theft will not be observed in the model the friedman rule is in general not optimal with theft and the optimal money growth rate tends to rise as the cost of theft falls

dynamics in a transactions based monetary growth model abstract this paper characterizes the dynamics of a monetary endogenous growth model in which money is introduced into the system via a transactions cost technology a monetary equilibrium that either satisfies the friedman rule of the optimum quantity of money or accommodates the zero inflation rate policy is dynamically unstable with cagan like hyperinflation the monetary equilibrium may either be unstable or exhibit dynamic indeterminacy in which a variety of equilibrium outcomes emerge in transition the rate of monetary expansion the relative magnitudes of the intertemporal elasticity of substitution and the production technological parameter are crucial for determining the stability property of the model

feed in tariff promotion and innovative measures for renewable electricity taiwan case analysis abstract taiwan located in a subtropical area is a high energy importing nation with approximately 98 of our energy supplied by imported fuels since 2000 in this regard renewable electricity systems from its richness of solar radiation and strong monsoon are thus becoming attractive due to the energy economic and environmental policies for pursuing clean electricity supply sustainable development and greenhouse gases emission mitigation in taiwan the objective of this paper was to present an analysis of profitable promotion and innovative measures for renewable electricity in taiwan because the photovoltaic pv power and wind power systems have rapidly increased the total installed capacity from 2 7 mw in 2000 to 1006 2 mw in 2013 the description in the paper was thus summarized on an analysis of renewable electricity supply since 2000 and its future goals up to 2030 and then centered on the new promotion legislation i e renewable energy development act in the measures of feed in tariff fit and tax subsidy incentives current subsidiary and innovative programs to promote the development of renewable electricity technologies including roof type pv power off shore wind power and biogas to power were also described due to its innovation promotion for renewable energy exploitation in recent years pingtung county located in the southernmost of taiwan was introduced as a case study finally some recommendations for promote renewable electricity development were addressed in the paper

measuring the welfare costs of inflation in a life cycle model abstract in a neoclassical growth model with life cycle households in which money is held to satisfy a cash in advance constraint the optimal steady state inflation rate is absurdly high in excess of 20 lump sum age independent money injections twist and flatten the lifetime profile of utility making this profile look more like the one that would be chosen by a planner the cost of monetary finance of lump sum payments is the distortion introduced to the labor leisure choice

financial development growth and the distribution of income a paradigm is presented in which both the extent of financial intermediation and the rate of economic growth are endogenously determined financial intermediation promotes growth because it allows a higher rate of return to be earned on capital and growth in turn provides the means to implement costly financial structures thus financial intermediation and economic growth are inextricably linked in accord with the goldsmith mckinnon shaw view on economic development the model also generates a development cycle reminiscent of the kuznet hypothesis in particular in the transition from a primitive slow growing economy to a developed fast growing one a nation passes through a stage in which the distribution of wealth across the rich and poor widens

the welfare cost of inflation in a cash in advance economy with costly credit the paper presents a modification of the lucas stokey 1983 cash in advance economy in which the representative consumer decides based on relative prices which goods to buy with cash and which with costly credit an explicit baumol 1952 condition emerges that guides this consumer choice deriving and estimating a closed form welfare cost function in an example economy the paper shows that the welfare cost of inflation depends on the margins of substitution the consumer avoids inflation through costly credit and faces higher welfare costs of inflation than in standard cash in advance economies

dynamic allocation of pharmaceutical detailing and sampling for long term profitability the u s pharmaceutical industry spent upwards of 18 billion on marketing drugs in 2005 detailing and drug sampling activities accounted for the bulk of this spending to stay competitive pharmaceutical managers need to maximize the return on these marketing investments by determining which physicians to target as well as when and how to target them in this paper we present a two stage approach for dynamically allocating detailing and sampling activities across physicians to maximize long run profitability in the first stage we estimate a hierarchical bayesian nonhomogeneous hidden markov model to assess the short and long term effects of pharmaceutical marketing activities the model captures physicians heterogeneity and dynamics in prescription behavior in the second stage we formulate a partially observable markov decision process that integrates over the posterior distribution of the hidden markov model parameters to derive a dynamic marketing resource allocation policy across physicians we apply the proposed approach in the context of a new drug introduction by a major pharmaceutical firm we identify three prescription behavior states a high degree of physicians dynamics and substantial long term effects for detailing and sampling we find that detailing is most effective as an acquisition tool whereas sampling is most effective as a retention tool the optimization results suggest that the firm could increase its profits substantially while decreasing its marketing spending our suggested framework provides important implications for dynamically managing customers and maximizing long run profitability

money and interest in a cash in advance economy the authors analyze an aggregative general equilibrium model in which the use of money is motivated by a cash in advance constraint applied to purchases of a subset of consumption goods the system is subject to both real and monetary shocks which are economy wide and observed by all they develop methods for verifying the existence of characterizing and explicitly calculating equilibria copyright 1987 by the econometric society

communication commitment and growth abstract we study the effect on the growth of an economy of alternative financing opportunities in a stochastic growth model with incentive constraints efficient accumulation mechanisms are designed and computed for economies that differ in their incentive structure we show that when borrowing is subject to information constraints there is a computable efficient transfer mechanism that does not affect capital accumulation and investment patterns even though consumption patterns and the distribution of wealth are affected in contrast enforcement constraints can severely reduce the outside financing opportunities and affect investment patters and economic growth we adapt numerical algorithms for obtaining numerical solutions of these models

the equivalence of lending equilibria and signalling based insurance under asymmetric information i present a model in which a continuum of individuals have stochastic idiosyncratic income shocks complete insurance is physically feasible but unattainable due to an information asymmetry income shocks are observable only by the individuals receiving them any insurance institution must therefore rely on self reporting of income innovations two ways of achieving incentive compatible self reporting are presented the first is a debt market with an explicit lending restriction the second is an insurance contract that linearly filters a signal transmitted by individuals the two are then demonstrated to be identical equilibrium consumption fluctuates in a random walk which is inefficient given the physical potential for complete insurance but is efficient given the information constraints the results are complementary to those of green 1987 but permit more general stochastic processes of income to be analyzed serial correlation of income reduces the efficiency of the insurance

anticipated inflation and the capital stock in a cash in advance economy abstract an economy is constructed in which the steady state capital stock is inversely related to the rate of inflation as a result that is directly opposite the usual conclusion

money real interest rates and output a reinterpretation of postwar u s data this paper reexamines both monthly and quarterly u s postwar data to investigate if the observed comovements between money real interestrates prices and output are compatible with the money real interest output link suggested by existing monetary theories of output which include both keynesian and equilibrium models the major empirical findings are these 1 in both monthly and quarterly data we cannot reject the hypothesis that the ex ante real rate is exogenous or granger causally prior in the context of a four variable system which contains money prices nominal interest rates and industrial production 2 in quarterly data there is significantly more information con tained in either the levels of expected inflation or the innovationof this variable for predicting future output given current and lagged output than in any other variable examined money actualinflation nominal interest rates or ex ante real rates the effect of an inflation innovation on future output is unambiguously negative the first result casts strong doubt on the empirical importance of existing monetary theories of output which imply that money should have a causal role on the ex ante real rates the second result would appear incompatible with most demand driven models of output in light of these results we propose an alternative structural model which can account for the major dynamic interactions among the variables this model has two central features i output is unaffected by money supply and ii the money supply process is motivated by short run price stability this abstract was borrowed from another version of this item

what is a liquidity crisis abstract this paper investigates the role of liquidity it is argued that the firm holds money as a guarantee of solvency to its contractual partners by holding liquid assets the firm is able to increase the efficiency of its contracts variations in the opportunity cost of holding money cause variations in the firm s demand for money and consequent variations in the frequency of contract failures this mechanism is suggested as an alternative explanation of the observed relationship between money income and interest rates

inflation investment and growth a money and banking approach output growth investment and the real interest rate in long run evidence tend to be negatively affected by inflation theoretically inflation acts as a human capital tax that decreases output growth and the real interest rate but increases the investment rate opposing evidence this paper resolves this puzzle by requiring exchange for investment as well as consumption inflation then decreases the investment rate and still decreases both output growth and real interest up to some moderately high rate of inflation above which increasingly low investment finally causes capital to fall relative to labour and the real interest rate to rise

on efficient distribution with private information this paper is a study of the dynamics of the efficient distribution of consumption in an exchange economy with many consumers each of whom is subject to private idiosyncratic taste shocks we propose a recursive method for finding feasible allocations that are incentivecompatible and that are pareto optimal within this set the method is applied to several parametric examples we find that in an efficient allocation the degree of inequality continually increases with a diminishing fraction of the population receiving an increasing fraction of the resources we discuss the extent to which these allocations can be decentralized via market arrangements this paper is a study of the dynamics of the efficient distribution of consumption in an exchange economy with private information the economy we study has a constant endowment flow of a single non storable consumption good which is to be allocated each period among a large number of consumers each period these consumers experience unpredictable idiosyncratic privately observed taste shocks affecting their marginal utility of current consumption efficiency dictates that more resources be allocated to those consumers who in any given period have a high marginal utility of current consumption

a note on income velocity of money in a cash in advance economy with capital a stochastic growth model with money introduced via a cash in advance constraint is used to analyze the behaviour of the income velocity of real monetary balances agents can purchase consumption goods only using government issued money and capital is a credit good the cash in advance constraint may become nonbinding because of the uncertainty about the realization of the state of the economy changes in the income velocity of money due to a precautionary money demand are studied we find that despite the precautionary money demand does not introduce significant changes into the volatility of the income velocity its presence can alter the relationship between the growth rate of money supply and the income velocity

liquidity preference and financial intermediation we examine the characteristics of optimal monetary policies in a general equilibrium model with incomplete markets markets are incomplete because of uninsured preference uncertainty and because productive capital is traded infrequently rational individuals are willing to hold a liquid asset money at a premium monetary policy interacts with existing flnancial institutions to determine this premium as well as the level of precautionary holdings we show that inflation is expansionary and that the optimal inflation rate is positive if there is no operative banking system the tobin effect otherwise efficiency requires that money be undominated in its rate of retum the friedman rule we analyse the preference for liquidity and evaluate the effects of monetary policy in a framework where individuals optimize and goods and asset markets are competitive liquidity needs of individuals and characteristics of assets are consequences of the structure of preferences technology and information equilibrium is compatible with diiferences in the rates of retum on assets differing in liquidity with divergences between household savings and aggregate investment in productive capital and distortion of household consumption plans we examine how these quantities are determined in altemative financial environments the extent to which monetary or interest rate policies are effective and desirable and the relative efficiency of altemative instruments which serve private liquidity needs we find that monetary policy is effective and infiation is expansionary if the consumption plans of individuals are constrained by the lack of liquidity at the same time such expansion can be welfare inferior intermediation which allows liquid assets to be issued against productive investment is both feasible and desirable unlike infiation intermediation achieves welfare enhancing expansion this allows a comparison of the tobin effect tobin 1965 and the friedman mle friedman 1969 in a general equilibrium model cmdely speaking the first indicates that infiation is desirable while the other claims that defiation is the difference as we show depends on the degree of intermediation money and productive capital are simultaneously held by individuals even when money has a lower rate of retum this is due to the fact that money is liquid it can be used to pay for goods at any time and in all states of nature capital on the other

repeated principal agent relationships with lending and borrowing abstract it is shown optimal long term contracts are strictly better than a series of unrelated short term contracts for two reasons long term contracts allow risk to be spread over time and the agent s intertemporal choices provide information about the unobservable random variable

asset markets and equilibrium processes the failure of the asset market to be complete causes serial dependence in output and prices which is suboptimal we consider an economy with white noise shocks when the asset market is complete an optimal competitive allocation inherits this strong stationarity when the asset market is only sequentially complete prices and output necessarily display serial dependence at equilibrium the further incompleteness of a monetary economy explains co movements in real and nominal variables

financial intermediation and price level control abstract because currency and deposits are not perfect substitutes in all transactions there are simplified financial systems in which control of the supply of currency is sufficient to control the price level most important in a currency supply approach price level control does not imply control of financial intermediation thus price level goals never have to be weighed against the availability of credit to finance real activity

optimality of the friedman rule in economies with distorting taxes abstract we find conditions for the friedman rule to be optimal in three standard monetary models our main contribution is to shed light on two issues in the literature first the conventional view maintains that when money is a final good its services should be taxed moreover if money demand is interest inelastic its services should be taxed heavily we show that this view is incorrect second there is an ongoing controversy about whether the optimality of the friedman rule is connected to the intermediate goods result from public finance we resolve this controversy by showing a deep connection between these results

do non intermediation services tell us more in the finance growth nexus causality evidence from eight oecd countries abstractthis paper provides new evidence on a traditional finance growth nexus through dividing financial services into financial intermediation and non intermediation services and examining their

the value of purchase history data in target marketing an important aspect of marketing practice is the targeting of consumer segments for differential promotional activity the premise of this activity is that there exist distinct segments of homogeneous consumers who can be identified by readily available demographic information the increased availability of individual consumer panel data open the possibility of direct targeting of individual households the goal of this paper is to assess the information content of various information sets available for direct marketing purposes information on the consumer is obtained from the current and past purchase history as well as demographic characteristics we consider the situation in which the marketer may have access to a reasonably long purchase history which includes both the products purchased and information on the causal environment short of this complete purchase history we also consider more limited information sets which consist of only the current purchase occasion or only information on past product choice without causal variables proper evaluation of this information requires a flexible model of heterogeneity which can accommodate observable and unobservable heterogeneity as well as produce household level inferences for targeting purposes we develop new econometric methods to implement a random coefficient choice model in which the heterogeneity distribution is related to observable demographics we couple this approach to modeling heterogeneity with a target couponing problem in which coupons are customized to specific households on the basis of various information sets the couponing problem allows us to place a monetary value on the information sets our results indicate there exists a tremendous potential for improving the profitability of direct marketing efforts by more fully utilizing household purchase histories even rather short purchase histories can produce a net gain in revenue from target couponing which is 2 5 times the gain from blanket couponing the most popular current electronic couponing trigger strategy uses only one observation to customize the delivery of coupons surprisingly even the information contained in observing one purchase occasion boasts net couponing revenue by 50 more than that which would be gained by the blanket strategy this result coupled with increased competitive pressures will force targeted marketing strategies to become much more prevalent in the future than they are today

financial structure and economic activity a recent development in economic science is the attempt to integrate monetary theory with the theory of general economic equilibrium this work takes as its starting point the idea that money cannot have value in standard general equilibrium models in these too much trade can be accomplished in centralized markets see robert clower 1969 1971 frank hahn 1973 or neil wallace 1980 thus to decentralize or break up the structure either exchange must be made costly or there must be restrictions on who can trade with whom and thus such choicetheoretic models offer the intriguing possibility that real and monetary phenomena can be understood as intimately related this paper continues in the relatively brief choice theoretic tradition motivated by real and monetary phenomena associated economic development and growth 1 to be noted first is simon kuznets seminal work on national income 1971 in a cross section study of fifty seven countries in 1958 kuznets shows that the share of the agricultural sector including forestry fishing and hunting in gross domestic product is inversely correlated with gross domestic product per capita the share of the industrial sector including transportation and communication is closely and positively associated with per capita product the share of the service sector tends to be positively but weakly associated with per capita product but the share of banking insurance and real estate shows a striking rise as one shifts from lowto higher income countries moreover the evidence suggests that the ratio of industrial prices to agricultural prices is perhaps lower the higher is per capita income though the evidence on relative prices for the service sector is inconsistent turning to long time series for thirteen developed and four less developed countries kuznets finds dramatic evidence for a decline of the agricultural sector and a rise in the industrial sector with per capita income at least in developed countries again results for the service sector are mixed but canada france and the united states are positive exceptions the share of a transport communication subsector rises quite consistently turning next to shares of sectors in the labor force kuznets finds both on a cross sectional and secular basis that all the above movements are at least mirrored and in many cases amplified in particular both components of the share of the service sector services and commerce rise substantially with gross domestic product per capita 2 to be noted second is the extensive work of raymond goldsmith on financial structure and financial intermediation for the united states goldsmith 1958 finds that the activity of intermediaries as measured by their share in national assets in tangible assets and in all claims has shown a substantial rise from 1860 to 1952 similarly goldsmith 1969 finds that the ratio of financial institutions assets to gross national product rises substantially from 1860 to 1963 in both developed and less developed countries including switzerland great britain the united states japan argentina and india related the number of households with savings accounts the number with life insurance policies and the number with stock ownership expressed as percents of the population are all low for less developed countries relative to developed countries and professor of economics carnegie mellon university graduate school of industrial administration schenley park pittsburgh pa 15213 this paper was motivated by a conversation with thomas sargent and has been aided by helpful comments from robert barro robert e lucas jr dan peled kenneth singleton and neil wallace financial support from the national science foundation the alfred p sloan foundation and the peterkin symposium on foundations of monetary policy and government finance at rice university and research assistance from pramerudee townsend are all gratefully acknowledged i alone assume full responsibility for any errors and for the views expressed here

optimal mailing of catalogs a new methodology using estimable structural dynamic programming models we investigate the key determinants of the optimal direct mail policy in a dynamic environment where customers maximize utility and the direct mailer maximizes profits we measure the sensitivity of the customers to receiving a catalog in the mail while controlling for customer characteristics such as elapsed time in responses and number of purchases we apply our model to a database from a national cataloger that markets nonseasonal products we summarize the results of our model that are valid for these types of products we find that the dynamic model significantly outperforms its single period counterpart we find that it is not optimal to mail to individuals at low recency levels because they are likely to buy anyway it is better to save the mailing dollars for customers at higher recency levels we find that it is optimal to mail to customers who have purchased only a small or a medium number of times to induce them to continue to buy from this catalog and not switch to others it is not necessary to mail often to customers who have purchased many times before from the company unless they have high recency values we find that under the optimal mailing policy the cataloguer enjoys higher profits than under the current mailing policy

valuing customer portfolios with endogenous mass and direct marketing interventions using a stochastic dynamic programming decomposition the customer relationship management allocation in marketing budgets is potentially misleading when it uses individual customer lifetime value estimations from historical data planned marketing interventions would change the purchasing behavior of different customers and history based decisions would thus be suboptimal to cope with this inherent endogeneity we model the optimal allocation of the marketing mix by accounting simultaneously for mass interventions and direct marketing interventions for each customer this is a large stochastic dynamic problem that in general is computationally rather intractable as a result of the curse of dimensionality we present an algorithm to derive the optimal marketing policies how the firm should allocate its marketing resources and the expected present value of those decisions which maximize the long term profitability of firms this allows the firm to value customers segments and helps the firm to target those that maximize long term profitability given the optimal marketing resources allocation we apply the proposed approach in the context of a kitchen appliance manufacturer the results identify the most effective marketing policies and the endogenous customer values it is in this context that we also dynamically identify the most profitable customer and the short and long term effects of marketing activities on each customer

the demand for money in the united states evidence from cointegration tests this paper uses recent cointegration test procedures to investigate the underlying economic relationship between real money balances real income and interest rates for the united states unlike recent studies of money demand the authors analysis uses quarterly data spanning the period 1915 88 thus providing a sample encompassing a wide variety of economic experiences the evidence presented indicates that the broader m2 measure of money is the preferable measure with which to consider the long run effects of monetary policy copyright 1991 by ohio state university press

the demand for bank reserves and other monetary aggregates the paper starts with haslag s 1998 model of the bank s demand for reserves and reformulates it with a cash in advance approach for both financial intermediary and consumer this gives a demand for a base of cash plus reserves that is not sensitive to who gets the inflation tax transfer it extends the model to formulate a demand for demand deposits yielding an m1 type demand and then includes exchange credit yielding an m2 type demand based on the comparative statics of the model it provides an interpretation of the evidence on monetary aggregates this explanation relies on the nominal interest as well as technology factors of the banking sector e31 e13 o42

capital in the payments system capital is required to support the payments system in modern economies with well developed financial markets financial innovations raise the marginal product of capital in this usage this suggests that there are general equilibrium consequences associated with an optimal selection of a payments system that includes barter money and a capital based accounting system in this paper goods are differentiated with respect to the medium of exchange associated with their acquisition which is endogenously determined as a consequence of explicit trading frictions the response of the economy to endowment production and payments system shocks including financial innovations is examined copyright 1992 by the london school of economics and political science

on repeated moral hazard with discounting in this paper we analyze optimal contracts in an infinitely repeated agency model in which both the principal and agent discount the future we show that there is a stationary representation of the optimal contract when the agent s conditional discounted expected utility is used as a state variable this representation reduces the multi period problem to a static variational problem which can be analyzed using standard variational techniques this reduction is used to obtain several properties of the contract

on the neutrality of inside and outside money outside money and real economic activity are explored using data on checkable deposits m2 excluding currency the monetary base and real income in the united states from 1900 to 1992 this is done by calculating the long run elasticities of real output with respect to inside and outside components of the money stock small but significant deviations from neutrality are detected for inside money over a range of identifying assumptions the evidence suggests however that the source of non neutrality is not the one hypothesized by gurley and shaw 1960

on exchange rates and economic growth abstract extending ireland s 1994 model this paper analyzes an international economy where cash or credit can be used for payment foreign trade credit is more costly than its domestic analog a depreciation of the real exchange rate is associated with an external surplus and a reduced share of imports purchased with credit economic growth slows when foreign trade credit becomes the predominant means of payment for international transactions a country with high inflation exports its tobin effect and thus temporarily increases world growth