Money, Credit, and Allocation Under Complete Dynamic Contracts and Incomplete Markets

S. Rao Aiyagari and Stephen Williamson ()

Working Papers from University of Iowa, Department of Economics

Abstract: We construct a dynamic heterogeneous-agent model with random uninsurable endowments. Two allocation mechanisms are considered, one with long-term complete credit arrangements under private information, and one with incomplete competitive markets. A role for money arises due to random limited participation. A Friedman rule is optimal in the first economy, and replicates a pure credit arrangement in the second. Computational results show that steady state allocations are quite different under the two arrangements, though the responses to changes in long-run inflation are similar.

Keywords: Money; Credit; Incomplete Markets (search for similar items in EconPapers)
JEL-codes: D8 E5 (search for similar items in EconPapers)
Date: 1997-12
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Working Paper: Money, Credit, and Allocation Under Complete Dynamic Contracts and Incomplete Markets (1998)
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Persistent link: http://EconPapers.repec.org/RePEc:uia:iowaec:97-20

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