Ah_sa:
Politicians & Bankers argue that monetary policy can affect the economy.
In a Walrasian framework, money is useless and cannot affect the real side of the economy.
How can we build a monetary economy in which monetary policy has persistent effect as reported by many empirical studies?
wangxiaohui:
Oh,Ah_sa, you have posed two different problems.
I think your first problem is about how to build a model that can offer a positive valued currency in a competitive equilibrium.what made the money unvalued is just because the model sets in the specific environment, There are two features of the economy which prevents the currency from being valued.
One is that the currency is just another asset in the above economy; it does not have any function that is not shared by other assets. The second is that the economy without a currency possesses a unique competitive equilibrium that is Pareto optimal.
So,Eliminating either of these two features will create room for valued currency.
you can illustrate such possibilities in three classes of models----the money-in-the-utility function model, the cash-in-advance model, and the overlapping generations model.
About your second problem,many monetary models build on the sticky prices or imperfect information, you may consult some papers wrote by,says,Chari,christiano,bernanke,or woodford et al.
Ah_sa:
以下是引用wangxiaohui在2003-3-13 10:31:00的发言：
"So,Eliminating either of these two features will create room for valued currency.
you can illustrate such possibilities in three classes of models----the money-in-the-utility function model, the cash-in advance model, and the overlapping generations model".
Some monetary economists (eg. N.Wallace) argue that these models are not primitive in that it assumes the existence of money by offering it a special & exclusive property: trading constraint in CIA, durability in OLG and utility in MIU.
That's why people started a search literature in monetary economics in the last 15 years. But the problem is that it is very hard to use these models for studying interesting policy questions (as in CIA, MIU, OLG).
以下是引用wangxiaohui在2003-3-13 10:31:00的发言：
"About your second problem,many monetary models build on the sticky prices or imperfect information, you may consult some papers wrote by,says,Chari,christiano,bernanke,or woodford et al".
Some economists (eg. Chari, McGrattan & Kehoe) found that we need unreasonably big nominal rigidity to create the persistence we observed. Besides there are many ad-hoc features built into the Christiano type of models. And the result are usually sensitive to the minor details. So I would say the problem of why monetary policy matters is still an open quesion.
wangxiaohui:
I think you are missing my point state above.monetary theory and monetary policy is quite different,there is a gap between the two,and we have not had a good model to link the two.It is a very great challenge.
you may know that monetary theory professionals such as Randull Wright,Shouyong shi,are not a monetary policy professionals,and monetary policy professionals such as Bernanke,Woodford or Chari also are not a monetary professionals.
wangxiaohui:
Ah_sa,I think we may post some relevant papers together with our questions.it will be helpfuf for us to discuss more effectively.
Ah_sa:
Source: http://minneapolisfed.org/research/sr/sr217.html
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Title Sticky Price Models of the Business Cycle: Can the Contract Multiplier Solve the Persistence Problem?
Author(s) V. V. Chari, Patrick J. Kehoe, and Ellen R. McGrattan
Date Revised May 1998
Published In Econometrica (Vol. 68, No. 5, September 2000, pp. 1151-79)
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ABSTRACT: We construct a quantitative equilibrium model with price setting and use it to ask whether with staggered price setting monetary shocks can generate business cycle fluctuations. These fluctuations include persistent output fluctuations along with the other defining features of business cycles, like volatile investment and smooth consumption. We assume that prices are exogenously sticky for a short period of time. Persistent output fluctuations require endogenous price stickiness in the sense that firms choose not to change prices very much when they can do so. We find that for a wide range of parameter values the amount of endogenous stickiness is small. As a result, we find that in a standard quantitative business cycle model staggered price setting, by itself, does not generate business cycle fluctuations.
fleeing:
to figure out this problem we should investigate the micro-microstructure of the market ,build macro models from bottom up ,there is a long way to go
fleeing:
Traditional macroeconomics is a model without trade ,or they assume away it ,all in pareto efficiency , so we don't need trading technology .It is said match function is the easiest way to describe trade , introduce friction . Money is used to overcome friction , to facilitate trade .Yet we have not friction in Arrow-Debreu model , and we have Walras' auctioneer do all the tading service for us for free ,so that explains why money cant find a place in Arrow-Debreu model and macro economics built on it .Representative agent in RBC model has no one to trade with .We have to find an appropriate method to introduce friction , and I think Kiyotaky’s method is a shotcut ,so it may have drawbacks and can only be used in very special cases.I am not quite sure about it , i am reading his papers.
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