Code for Risk Premia and the Real Effects of Money
Principal Investigator(s): View help for Principal Investigator(s) Sebastian Di Tella, Stanford Graduate School of Business
Version: View help for Version V1
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text/plain | 300 KB | 02/12/2020 12:45:PM |
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application/pdf | 22.5 KB | 02/12/2020 11:23:AM |
Project Citation:
Di Tella, Sebastian. Code for Risk Premia and the Real Effects of Money. Nashville, TN: American Economic Association [publisher], 2020. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2020-06-26. https://doi.org/10.3886/E117665V1
Project Description
Summary:
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This paper proposes a flexible-price theory of the role of money in an economy with incomplete idiosyncratic risk sharing. When the risk premium goes up, money provides a safe store of value that prevents interest rates from falling, reducing investment. Investment is too high during booms when risk is low, and too low during slumps when risk is high. Monetary policy cannot correct this—money is superneutral and Ricardian equivalence holds. The optimal allocation requires the Friedman rule and a tax/subsidy on capital. The real effects of money survive even in the cashless limit.
Scope of Project
JEL Classification:
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E32 Business Fluctuations; Cycles
E41 Demand for Money
E43 Interest Rates: Determination, Term Structure, and Effects
E44 Financial Markets and the Macroeconomy
E32 Business Fluctuations; Cycles
E41 Demand for Money
E43 Interest Rates: Determination, Term Structure, and Effects
E44 Financial Markets and the Macroeconomy
Data Type(s):
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program source code
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