MONEY WITH IDIOSYNCRATIC UNINSURABLE RETURNS TO CAPITAL

Miquel Faig

Working Papers from University of Toronto, Department of Economics

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.

Keywords: Income fluctuations; uninsurable risk; demand for money; optimum quantity of money. (search for similar items in EconPapers)
JEL-codes: E31 E40 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2000-02-11
New Economics Papers: this item is included in nep-dge, nep-ias and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Money with Idiosyncratic Uninsurable Returns to Capital (2000)
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Persistent link: https://EconPapers.repec.org/RePEc:tor:tecipa:faig-00-01

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