tailieunhanh - Money and Bonds: An Equivalence Theorem

This paper considers four models in which immortal agents face idiosyncratic shocks and trade only a single risk-free asset over time. The four models specify this single asset to be private bonds, public bonds, public money, or private money respectively. I prove that, given an equilibrium in one of these economies, it is possible to pick the exogenous elements in the other three economies so that there is an outcome-equivalent equilibrium in each of them. (The term "exogenous variables" refers to the limits on private issue of money or bonds, or the supplies of publicly issued bonds or money.). | Federal Reserve Bank of Minneapolis Research Department Staff Report 393 July 2007 Money and Bonds An Equivalence Theorem Narayana R. Kocherlakota University of Minnesota Federal Reserve Bank of Minneapolis and NBER ABSTRACT_ This paper considers four models in which immortal agents face idiosyncratic shocks and trade only a single risk-free asset over time. The four models specify this single asset to be private bonds public bonds public money or private money respectively. I prove that given an equilibrium in one of these economies it is possible to pick the exogenous elements in the other three economies so that there is an outcome-equivalent equilibrium in each of them. The term exogenous variables refers to the limits on private issue of money or bonds or the supplies of publicly issued bonds or money. I thank Shouyong Shi and Neil Wallace for great conversations about this paper I thank Ed Nosal Chris Phelan Adam Slawski Hakki Yazici and participants in SED 2007 session 44 for their comments. I acknowledge the support of NSF 06-06695. The views expressed herein are mine and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System. 1. Introduction In this paper I examine four different models of asset trade. In all of them immortal agents face idiosyncratic shocks to tastes and or productivities. They can trade a single risk-free asset over time. Preferences and risks are the same in all four models. The models differ in their specification of what this single asset is. In the first two models agents trade interest-bearing bonds. In the first model agents can trade one period risk-free bonds available in zero net supply subject to personindependent borrowing restrictions. In the second model agents can trade one period risk-free bonds available in positive net supply but they cannot short-sell the asset. A government pays the interest on these bonds .