Essays on monetary theory
Abstract
This thesis includes three essays on monetary theory analyzing monetized trading arrangements in three separate environments: (1) transient economy, (2) economy with two competing imperfect record-keeping technologies, and (3) economy where agents are subject to productivity shocks. In Essay 1 we study whether autarchy is the only incentive-feasible trading arrangement if the economy or money are transient. In the absence of commitment and memory, agents can choose autarchy or specialize and trade bilaterally exploiting an imperfect record-keeping technology, perishable tokens. Trading arrangements are endogenous and individual market participation creates a positive externality to others. We construct equilibria where tokens are valued until their demise or, in a finite-horizon economy, some date prior to the last. As the size of the market increases, individual participation confers smaller benefits to others and the equilibria cease to exist. Essay 2 extends the work of Kocherlakota and Wallace (1998) that generalizes search-theoretic model of money to permit a mix of transactions: monetized trade and reciprocal exchange of gifts. We develop conditions under which people should only trade, only engage in reciprocal exchanges, or employ both record-keeping technologies side by side, respectively. We show that in a monetary equilibrium with reciprocal exchange, presence of gift-giving decreases the optimal value of money, since money-less consumers get to consume free gifts from producers. On the other hand, the impact of introduction of money on the optimal size of a gift is ambiguous. Finally, in Essay 3 we study the allocations achieved in a prototypical search-theoretic model of money where prices are endogenously formed and agents are subject to productivity shocks. We find that on some segments of the parameter space Pareto-ranked symmetric stationary equilibria can be constructed. The best equilibrium is the one in which prices are low but, surprisingly, market activity is also low. In this equilibrium money is only used to facilitate trades with the most efficient sellers, and never used to trade with the most inefficient agents. This equilibrium is unique and welfare is higher, if the money supply is reduced.
Degree
Ph.D.
Advisors
Camera, Purdue University.
Subject Area
Economic theory
Off-Campus Purdue Users:
To access this dissertation, please log in to our
proxy server.