Essays on macroeconomics and economic theory

Francesco Ruscitti, Purdue University

Abstract

Models of monetary economies with explicit micro-foundations play a central role in macroeconomics. A common assumption is the quasi-linearity of individuals' preferences. Moreover, anonymity rules out credit and implies that individuals are constrained in their ability to save and borrow. These key features ensure an explicit role for money as medimn of exchange and foster analytical tractability. However, they present complications for the applicability of dynamic programming techniques. Barring a few exceptions, in these models either neoclassical production and money with no role for financial intermediation is examined, or financial intermediation and money are modelled with no central role for the labor market and neoclassical production. In the second chapter of this thesis we propose a model in which neoclassical production and a labor market are introduced along with money and financial intermediaries. We study the impact of inflation on financial markets and mad economic activity. There are three main Endings. First, inflation hampers financial depth and output and, even at moderate levels, it causes inefficiencies due to price distortions. Second, there exists an inflation threshold beyond which the process of financial intermediation breaks down. Third, economies characterized by greater frictions in financial intermediation display a lower sustainable inflation rate. In the third chapter we show how one can overcome the difficulties associated with the application of dynamic programming. We restrict the value function to bounded intervals and we demonstrate that the marginal value of money balances is well-defined even though the policy function does not satisfy the standard interiority assumptions. To establish this result we develop a new proof of the differentiability of the value function. In the fourth chapter we revisit the one-sector optimal growth model and we analyze the implications of the Inada conditions. We present a new proof of the interiority of the policy function. Unlike previous approaches that focus on the Ramsey-Filer equations, we exploit the supporting properties of the value function. In addition, Our method does not require that an optimal capital accumulation path be given.

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
.

Share

COinS