New Approaches to Monetary Economics: Proceedings of the Second International Symposium in Economic Theory and Econometrics (International Symposia in Economic Theory and Econometrics (No. 2))

380 Pages·2009·4.07 MB·English

New Approaches to Monetary Economics brings together presentations
of innovative research in the field of monetary economics. Much of this
research develops and applies newly initiated approaches to modeling fi-
nancial intermediation, aggregatef luctuations,m onetary aggregation, and
transactions motivated monetary equilibrium.
The contents of this volume comprise the proceedings of the second
in a new conference series entitled International Symposia in Economic
2
Theory and Econometrics. This conference was held in 1985 at the IC
(Innovation, Creativity, and Capital) Institute at the University of Texas
2
at Austin. The symposia in this series are sponsored by the IC Institute
and the RGK Foundation.
New Approaches to Monetary Economics, edited by Professors Wil-
liam A. Barnett and Kenneth J. Singleton, consists of five parts. Part I
examines transactions motivated monetary holding in general equilib-
rium; Part II, financial intermediation; Part III, monetary aggregation
theory; Part IV, issues in aggregate fluctuation; and Part V, theoretical
issues in the foundations of monetary economics and macroeconomics.
New approaches to monetary economics
International Symposia in Economic Theory and Econometrics
Editor
William A. Barnett, University of Texas at Austin
New approaches to
monetary economics
Proceedings of the Second International Symposium
in Economic Theory and Econometrics
edited by
WILLIAM A. BARNETT
University of Texas at Austin
and
KENNETH J. SINGLETON
Carnegie-Mellon University
The right of ike
Unltertity of Cambridge
to print and tell
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was granted by
Henry Vlll in 1334.
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and publlthed continuously
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CAMBRIDGE UNIVERSITY PRESS
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© Cambridge University Press 1987
This publication is in copyright. Subject to statutory exception
and to the provisions of relevant collective licensing agreements,
no reproduction of any part may take place without the written
permission of Cambridge University Press.
First published 1987
Reprinted 1988
This digitally printed version 2008
A catalogue record for this publication is available from the British Library
Library of Congress Cataloguing in Publication data
International Symposium in Economic Theory and
Econometrics (2nd : 1985 : Austin, Tex.)
New approaches to monetary economics.
(International symposia in economic theory and
econometrics)
1. Monetary policy - Econometric models - Congresses.
2. Money supply - Econometric models - Congresses.
I. Barnett, William A. II. Singleton, Kenneth J.
III. Title. IV. Series.
HG205.I565 1985 332.4'0724 87-5113
ISBN 978-0-521-33265-1 hardback
ISBN 978-0-521-10049-6 paperback
Contents
Editors' introduction page vii
List of contributors ix
Part I: Transactions motivated monetary holdings in
general equilibrium
1. Monetary dynamics with proportional transaction
costs and fixed payment periods
Sanford J. Grosman 3
2. A multiple means-of-payment model
Edward C. Prescot 42
3. Credit policy and the price level in a cash-in-advance
economy
Michael Wodford 52
Part II: Financial intermediation
4. Preference shocks, liquidity, and central bank policy
Sudipto Bhatacharya and Douglas Gale 69
5. Banking and macroeconomic equilibrium
Ben Bernanke and Mark Gertler 89
Part III: Monetary aggregation theory
6. The microeconomic theory of monetary aggregation
Wiliam A. Barnet 15
7. Monetary asset separability tests
Apostolos Serletis 169
8. Money demand in open economies: a Divisia
application to the U.S. case
Jaime Marquez 183
vi Contents
9. Aggregation of monetary goods: a production
model
Diana Hancock 200
10. Money in the utility function: an empirical
implementation
James M. Poterba and Julio J. Rotemberg 219
11. Comment on papers in Part III
Wiliam A. Barnet 241
Part IV: Issues on aggregate fluctuations
12. Asset prices in a time-series model with disparately
informed, competitive traders
Kenneth J. Singleton 249
13. Nominal surprises, real factors, and propagation
mechanisms
Robert G. King and Charles I. Plosser 273
14. A rational expectations framework for short-run
policy analysis
Christopher A, Sims 293
Part V: Theoretical issues in the foundations of monetary economics
and macroeconomics
15. Pricing and the distribution of money holdings in
a search economy, II
Peter Diamond and Joel Yelin 311
16. The optimal inflation rate in an
overlapping-generations economy with land
Bennet T. McCalum 325
17. Some unsolved problems for monetary theory
Neil Walace 340
18. Externalities associated with nominal price and
wage rigidities
John B. Taylor 350
Editors' introduction
The contents of this volume comprise the proceedings of a conference
2
held at the IC Institute at the University of Texas at Austin on May 23-
l
24, 1985. The conference title was "New Approaches to Monetary Eco-
nomics," and it was organized to bring together presentations of some of
the particularly innovative new research that recently has been under way
in the field of monetary economics. Much of this research develops and
applies recently initiated approaches to modeling financial intermedia-
tion, aggregate fluctuations, monetary aggregation, and transactions mo-
tivated monetary equilibrium. We believe that this conference included
pathbreaking research and revealed some fundamental trends in the di-
rection in which monetary economics research is beginning to move.
The conference that produced this proceedings volume is the second in
a new conference series, called International Symposia in Economic The-
2
ory and Econometrics. The symposia in the series are sponsored by the
2
IC Institute at the University of Texas at Austin and are cosponsored by
the RGK Foundation. This second conference also was cosponsored by
the Federal Reserve Bank of Dallas and by the Department of Economics
and the Center for Statistical Sciences at the University of Texas at Aus-
tin. Thef irstc onference in the series was co-organized by William Barnett
and Ronald Gallant, who also co-edited the proceedings volume. That
volume has appeared as the volume 30, October/November 1985 edition
of the Journal of Econometrics.
Beginning with this second symposium in the series, the proceedings
of the symposia will appear as volumes in this new Cambridge University
Press monograph series. The co-organizers of the second symposium and
co-editors of this proceedings volume are William Barnett and Kenneth
Singleton. The series is under the general editorship of William Barnett.
1 2
IC stands for Innovation, Creativity, and Capital.
2
The title of the series recently was changed from the Austin Symposia in Economics, as
a result of the increasingly international nature of the symposia in the series.
vii