The distribution of money across households is much more similar to the distribution of financial assets than to that of consumption expenditures. This is a puzzle for theories which directly link ...money demand to consumption. This paper shows that the joint distribution of money and financial assets can be explained in a heterogeneous-agent model where both a cash-in-advance constraint and financial adjustment costs, as in the Baumol–Tobin literature, are introduced. Studying each friction in turn, one finds that the financial friction explains more than 78% of total money demand.
•Cash-in-advance constraints do not generate realistic money distributions.•The distribution of money is similar to the distribution of financial assets.•A fixed participation cost to financial markets is necessary to reproduce the data.•The participation cost explains more than 78% of total money demand.
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GEOZS, IJS, IMTLJ, KILJ, KISLJ, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UL, UM, UPCLJ, UPUK
We study the macroeconomic implications of time-varying precautionary savings within a general equilibrium model with borrowing constraints, aggregate shocks and uninsurable idiosyncratic ...unemployment risk. Our framework generates limited cross-sectional household heterogeneity as an equilibrium outcome, thereby making it possible to analyse the role of precautionary saving over the business cycle in an analytically tractable way. The time-series behaviour of aggregate consumption generated by our model is closer to the data than that implied by the hand-to-mouth and representative-agent models, and it is comparable to that produced by the Krusell and Smith (1998) model.
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BFBNIB, FZAB, GIS, IJS, INZLJ, IZUM, KILJ, NLZOH, NMLJ, NUK, OILJ, PILJ, PNG, SAZU, SBCE, SBMB, UL, UM, UPUK, ZRSKP
La crise économique que nous traversons montre le rôle pivot des banques centrales dans les économies développées. Si elles se veulent les gardiennes discrètes de la stabilité des prix, cette crise ...souligne la nécessité de repenser plus globalement leur rôle. D’abord, elles n’ont pas su percevoir, pas plus que les autres acteurs, la transformation des marchés financiers en un système bancaire parallèle non réglementé. Ensuite, la gestion de la crise de la liquidité les a conduites à assumer de nouvelles fonctions pour assurer directement le financement de l’économie. Enfin, le problème de la dette publique européenne, puis américaine, les a obligées à modifier leur action sans qu’elles précisent toujours leur doctrine. Phénomène inédit dans la période actuelle, les banques centrales contribuent désormais au financement des États. À quoi conduiront de tels bouleversements ? À un nouveau fonctionnement des marchés financiers, sans doute, avec une nouvelle place occupée par les banques centrales. Revenant sur ces évolutions, Xavier Ragot démontre qu’il sera nécessaire que les banques centrales prennent en compte non seulement la stabilité des prix, c’est-à-dire le contrôle de l’inflation, mais aussi, de manière plus générale, la stabilité financière et la stabilité économique. Après « De l’euphorie à la panique. Penser la crise financière » (A. Orléan) et L’Épargnant dans un monde en crise. Ce qui a changé » (L. Arrondel et A. Masson), la « collection du Cepremap » poursuit son exploration des enjeux financiers et économiques de la crise.
This paper derives the optimal money injection at the Zero Lower Bound (ZLB), in a tractable model where households hold heterogeneous money holdings due to explicit financial frictions, such as ...limited participation and temporary binding credit constraints. This framework is motivated by recent empirical findings. A deleveraging shock generates deflationary pressure and a fall in the real interest rate, pushing the economy to the ZLB. The main result is that open-market operations can stabilize the economy at the ZLB whereas lump-sum money transfers cannot. Moreover, an optimal money injection does not avoid the economy being at the ZLB.
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BFBNIB, INZLJ, NMLJ, NUK, PNG, UL, UM, UPUK, ZRSKP
A liquidity-insurance motive for monetary policy operates when heterogeneous households use government-provided liquidity (“money”) to insure idiosyncratic risk. In our tractable sticky-price model ...this changes the central bank's trade-off by adding a linear benefit of insurance in the second-order approximation to aggregate welfare. Inflation volatility hinders the consumption volatility of constrained households as a side-effect of liquidity-insuring them; but price stability has quantitatively significant welfare costs only when monopolistic rents are also large, which indicates a complementarity between imperfect-insurance and New-Keynesian distortions. Helicopter drops are welfare-superior to open-market operations to achieve insurance, but quantitatively their benefit is surprisingly small.
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GEOZS, IJS, IMTLJ, KILJ, KISLJ, NLZOH, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UILJ, UL, UM, UPCLJ, UPUK, ZAGLJ, ZRSKP
This paper presents a positive and normative study of a world financial market when sovereign countries can default on their debt. We construct a tractable model that enables us to study sovereign ...default in general equilibrium. The amount of safe assets is thus endogenous and determined by international risk-sharing. We characterize the equilibrium structure and we show that the market equilibrium can generate multiple equilibria. In addition, the market equilibrium is not constrained-efficient because countries do not fully internalize the value of their debt being used as liquidity. We prove that a world fund issuing a safe asset increases aggregate welfare. The fund's relationship with the IMF's Special Drawing Rights is discussed.
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GEOZS, IJS, IMTLJ, KILJ, KISLJ, NLZOH, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UILJ, UL, UM, UPCLJ, UPUK, ZAGLJ, ZRSKP
We present a truncation theory of idiosyncratic histories for heterogeneous-agent models. This method allows us to solve for optimal Ramsey policies in such models with aggregate shocks. The method ...can be applied to a large variety of settings, with occasionally binding credit constraints. We use this theory to characterize the optimal level of unemployment insurance over the business cycle in a production economy. We find that the optimal policy is countercyclical.
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BFBNIB, FZAB, GIS, IJS, IZUM, KILJ, NLZOH, NUK, OILJ, PILJ, SAZU, SBCE, SBMB, UL, UM, UPUK
Of the many good ideas currently being discussed in Europe, the most interesting proposal is to let national unemployment schemes manage the regular business cycle, and to provide European financing ...to extend the duration of unemployment benefits during a crisis period.
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CEKLJ, FZAB, GEOZS, IJS, IMTLJ, KILJ, KISLJ, MFDPS, NUK, OBVAL, OILJ, PNG, SAZU, SBCE, SBJE, SBMB, SBNM, UKNU, UL, UM, UPUK, VKSCE, ZAGLJ
Deux projets sont actuellement à l'étude pour lutter contre les divergences croissantes entre les économies européennes : celui d'un budget de la zone euro et celui d'une assurance chômage ...européenne. L'auteur plaide pour la deuxième piste, à ses yeux plus réaliste et plus efficace.
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