IDEAS home Printed from https://ideas.repec.org/a/eee/jetheo/v94y2000i2p218-240.html
   My bibliography  Save this article

Money with Idiosyncratic Uninsurable Returns to Capital

Author

Listed:
  • Faig, Miquel

Abstract

This paper extends the income fluctuations problem to an economy with endogenous growth. In the present setup, individuals, instead of owning an stream of endowments, accumulate capital with an investment irreversibility constraint and face uninsurable idiosyncratic risks to the return to capital. Money provides both a risk diversification and a liquidity role. Balanced growth paths exist despite the increasing dispersion of the wealth distribution. The return to money cannot be equated to the social return to capital (Friedman's rule on the optimum quantity of money) unless the government owns the entire capital stock with idiosyncratic risk, and it is capable of operating this stock as efficiently as private agents can. KEY WORDS: Income fluctuations, uninsurable risk, demand for money, optimum quantity of money.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Faig, Miquel, 2000. "Money with Idiosyncratic Uninsurable Returns to Capital," Journal of Economic Theory, Elsevier, vol. 94(2), pages 218-240, October.
    • Handle: RePEc:eee:jetheo:v:94:y:2000:i:2:p:218-240
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0022-0531(00)92672-3
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Levine, David K., 1991. "Asset trading mechanisms and expansionary policy," Journal of Economic Theory, Elsevier, vol. 54(1), pages 148-164, June.
    2. Mehrling, Perry, 1995. "A note on the optimum quantity of money," Journal of Mathematical Economics, Elsevier, vol. 24(3), pages 249-258.
    3. Duncan K. Foley & Martin F. Hellwig, 1975. "Asset Management with Trading Uncertainty," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 42(3), pages 327-346.
    4. Taub, B, 1988. "Efficiency in a Pure Currency Economy with Inflation," Economic Inquiry, Western Economic Association International, vol. 26(4), pages 567-583, October.
    5. Judd, Kenneth L., 1985. "The law of large numbers with a continuum of IID random variables," Journal of Economic Theory, Elsevier, vol. 35(1), pages 19-25, February.
    6. Aiyagari, S. Rao & Gertler, Mark, 1991. "Asset returns with transactions costs and uninsured individual risk," Journal of Monetary Economics, Elsevier, vol. 27(3), pages 311-331, June.
    7. Bewley, Truman, 1983. "A Difficulty with the Optimum Quantity of Money," Econometrica, Econometric Society, vol. 51(5), pages 1485-1504, September.
    8. Faig, Miquel, 2000. "Money with Idiosyncratic Uninsurable Returns to Capital," Journal of Economic Theory, Elsevier, vol. 94(2), pages 218-240, October.
    9. Alvarez, Fernando & Stokey, Nancy L., 1998. "Dynamic Programming with Homogeneous Functions," Journal of Economic Theory, Elsevier, vol. 82(1), pages 167-189, September.
    10. Faig, Miquel, 2000. "The Optimal Structure of Liquidity Provided by a Self-Financed Central Bank," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(4), pages 746-765, November.
    11. Timothy J. Kehoe & David K. Levine & Michael Woodford, 1990. "The optimum quantity of money revisited," Working Papers 404, Federal Reserve Bank of Minneapolis.
    12. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 103-126, October.
    13. Woodford, Michael, 1990. "Public Debt as Private Liquidity," American Economic Review, American Economic Association, vol. 80(2), pages 382-388, May.
    14. Kiyotaki, Nobuhiro & Wright, Randall, 1993. "A Search-Theoretic Approach to Monetary Economics," American Economic Review, American Economic Association, vol. 83(1), pages 63-77, March.
    15. Feldman, Mark & Gilles, Christian, 1985. "An expository note on individual risk without aggregate uncertainty," Journal of Economic Theory, Elsevier, vol. 35(1), pages 26-32, February.
    16. Lucas, Robert E, Jr, 1980. "Equilibrium in a Pure Currency Economy," Economic Inquiry, Western Economic Association International, vol. 18(2), pages 203-220, April.
    17. Huggett, Mark, 1993. "The risk-free rate in heterogeneous-agent incomplete-insurance economies," Journal of Economic Dynamics and Control, Elsevier, vol. 17(5-6), pages 953-969.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Faig, Miquel, 2000. "Money with Idiosyncratic Uninsurable Returns to Capital," Journal of Economic Theory, Elsevier, vol. 94(2), pages 218-240, October.
    2. Faig, Miquel & Gagnon, Gregory, 2008. "Scarce collateral and bank reserves," Journal of Macroeconomics, Elsevier, vol. 30(4), pages 1723-1737, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Faig, Miquel, 2000. "The Optimal Structure of Liquidity Provided by a Self-Financed Central Bank," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(4), pages 746-765, November.
    2. Faig, Miquel & Gagnon, Gregory, 2008. "Scarce collateral and bank reserves," Journal of Macroeconomics, Elsevier, vol. 30(4), pages 1723-1737, December.
    3. Florin Bilbiie & Xavier Ragot, 2021. "Optimal Monetary Policy and Liquidity with Heterogeneous Households," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 41, pages 71-95, July.
    4. François Le Grand & Xavier Ragot, 2017. "Optimal Fiscal Policy with Heterogeneous Agents and Aggregate Shocks," Working Papers hal-03458683, HAL.
    5. Domeij, David & Ellingsen, Tore, 2015. "Rational Bubbles and Economic Crises: A Quantitative Analysis," SSE Working Paper Series in Economics 2015:1, Stockholm School of Economics.
    6. repec:spo:wpmain:info:hdl:2441/j7nncuouv9a0af4mubojrr2vc is not listed on IDEAS
    7. Rocheteau, Guillaume & Weill, Pierre-Olivier & Wong, Russell, 2018. "A tractable model of monetary exchange with ex-post heterogeneity," Theoretical Economics, Econometric Society, vol. 13(3), September.
    8. Xavier Ragot, 2018. "Limited Participation, Capital Accumulation and Optimal Monetary Policy," Working Papers hal-03444395, HAL.
    9. Daron Acemoglu & Martin Kaae Jensen, 2015. "Robust Comparative Statics in Large Dynamic Economies," Journal of Political Economy, University of Chicago Press, vol. 123(3), pages 587-640.
    10. Aiyagari, S. Rao & McGrattan, Ellen R., 1998. "The optimum quantity of debt," Journal of Monetary Economics, Elsevier, vol. 42(3), pages 447-469, October.
    11. Samuel Gil Martín, 2012. "Liquidity, Welfare and Distribution," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 59(2), pages 217-234, May.
    12. repec:spo:wpmain:info:hdl:2441/j75mfllkr89c8aod1nr586ksc is not listed on IDEAS
    13. Wen, Yi, 2015. "Money, liquidity and welfare," European Economic Review, Elsevier, vol. 76(C), pages 1-24.
    14. Yi Wen, 2012. "Liquidity and welfare," Working Papers 2012-037, Federal Reserve Bank of St. Louis.
    15. repec:spo:wpecon:info:hdl:2441/j7nncuouv9a0af4mubojrr2vc is not listed on IDEAS
    16. repec:hal:spmain:info:hdl:2441/j7nncuouv9a0af4mubojrr2vc is not listed on IDEAS
    17. Edouard Challe & Xavier Ragot, 2010. "Aggregate Consumption in Times of Crisis: The Role of Financial Frictions -super-1," CESifo Economic Studies, CESifo Group, vol. 56(4), pages 627-648, December.
    18. repec:hal:spmain:info:hdl:2441/j75mfllkr89c8aod1nr586ksc is not listed on IDEAS
    19. repec:hal:wpspec:info:hdl:2441/j7nncuouv9a0af4mubojrr2vc is not listed on IDEAS
    20. François Legrand & Xavier Ragot, 2016. "Optimal policy with heterogeneous agents and aggregate shocks : An application to optimal public debt dynamics," 2016 Meeting Papers 1272, Society for Economic Dynamics.
    21. Brunnermeier, Markus K. & Niepelt, Dirk, 2019. "On the equivalence of private and public money," Journal of Monetary Economics, Elsevier, vol. 106(C), pages 27-41.
    22. Clemens, Christiane & Heinemann, Maik, 2015. "Endogenous growth and wealth inequality under incomplete markets and idiosyncratic risk," Journal of Macroeconomics, Elsevier, vol. 45(C), pages 300-317.
    23. Xavier Ragot, 2023. "Optimal Monetary Policy in a Liquidity Trap with Heterogeneous Agents," Annals of Economics and Statistics, GENES, issue 149, pages 97-124.
    24. Toda, Alexis Akira, 2019. "Wealth distribution with random discount factors," Journal of Monetary Economics, Elsevier, vol. 104(C), pages 101-113.
    25. Konrad Podczeck, 2010. "On existence of rich Fubini extensions," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 45(1), pages 1-22, October.
    26. Levine, David K., 1991. "Asset trading mechanisms and expansionary policy," Journal of Economic Theory, Elsevier, vol. 54(1), pages 148-164, June.

    More about this item

    Keywords

    income fluctuations; uninsurable risk; demand for money; optimum quantity of money.
    (this abstract was borrowed from another version of this item.)    ;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jetheo:v:94:y:2000:i:2:p:218-240. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/622869 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.