Zannini, U. (2020). The optimal quantity of money and partially-liquid assets. Journal of Economic Theory, doi: https://doi.org/10.1016/j.jet.2020.105034
We consider an economy Ă la Diamond and Dybvig (1983) in which agents can only trade in a decentralize market with bilateral matches, and without any form of intermediation. We show that an equilibrium with positive liquidity provision does not exist when either the patient or impatient consumer has the whole bargaining power. When the bargaining power is not extreme, the existence of a symmetric equilibrium depends on the matching function, the liquidity shock, and the return on the productive technology. Given the equilibrium, and with vanishing matching friction for the patient type, we find that the decentralized market is a welfare improving mechanism upon the competitive market. In this case, if the fraction of impatient consumers is one half, the decentralized market attains the First Best allocation.
Government outside at money is de ned by Friedman (1986) as currency plus reserves and deposits at the central bank, and plays a key role as financial net worth for the private sector in a relevant fraction of monetary models. In this paper we investigate if this definition applies to the euro architecture. First, we show that only coins are net worth for the private sector, but not also purchasing power for the fiscal authorities because the face value is very close to the production cost. Since 2002 euro coins are almost equal to 0.26% of M2 and 0.27% of the consolidated government debts. Second, banknotes have the same nature of reserves where they come from. Third, reserves borrowed through reverse transactions are are financial net worth for reserve-holding institutions if the Ponzi game on reserves is allowed, but they are not outside money for the rest of the economy (households, firms, fiscal authorities, other financial institutions). Fourth, reserves issued through central bank's outright purchases on the secondary market are outside money only for the rest of the economy if the debt repayment is indefinitely postponed, i.e. the debtor violates the no-Ponzi-game condition. Fifth, national debt is not different from firm and household debt. We also discuss some possible issues associated with this monetary architecture.
"A theory of capital reallocation with money and unemployment"
I microfound capital reallocation in a general equilibrium model, with matching in the labor market and a medium of exchange in the capital market. Both labor and monetary frictions are necessary for the emergence of reallocation. The main feature of the model is that capital reallocation is a steady-state phenomenon. In particular, I can focus on capital reallocation as a saving-portfolio choice. A free-entry condition for the business sector splits the population between workers and entrepreneurs, and the labor market creates unproductive (unmatched) entrepreneurs. If the return on money exceeds the return on idle capital, then the unproductive entrepreneur prefers to save money than capital investment, thus reallocation takes place. I study analitically the case in which workers have no bargaining power in the labor market. The model reproduces qualitatively the observed (negative) comovement between reallocated capital and productivity dispersion, and the (positive) comovements between reallocated capital and the interest rate on alternative saving/investment opportunities.