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Book
Year: 2000 Publisher: Cambridge, Mass. National Bureau of Economic Research
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Book
Year: 2000 Publisher: Cambridge, Mass. National Bureau of Economic Research
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Digital
Year: 2000 Publisher: Cambridge, Mass. National Bureau of Economic Research
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Digital
Year: 2000 Publisher: Cambridge, Mass. National Bureau of Economic Research
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Year: 2000 Publisher: Minneapolis, Minn. Federal Reserve Bank of Minneapolis
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Year: 2000 Publisher: Lawrence University of Kansas. Paleontological Institute
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Book
Year: 2000 Publisher: Cambridge, Mass. National Bureau of Economic Research
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We propose a method to measure the welfare cost of economic fluctuations that does not require full specification of consumer preferences and instead uses asset prices. The method is based on the marginal cost of consumption fluctuations, the per unit benefit of a marginal reduction in consumption fluctuations expressed as a percentage of consumption. We show that this measure is an upper bound for the benefit of reducing all consumption fluctuations. We also clarify the link between the cost of consumption uncertainty, the equity premium, and the slope of the real term structure. To measure the marginal cost of fluctuations, we fit a variety of pricing kernels that reproduce key asset pricing statistics. We find that consumers would be willing to pay a very high price for a reduction in overall consumption uncertainty. However, for consumption fluctuations corresponding to business cycle frequencies, we estimate the marginal cost to be about 0.55% of lifetime consumption based on the period 1889-1997 and about 0.30% based on 1954-97.
Book
Year: 2000 Publisher: Cambridge, Mass. National Bureau of Economic Research
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This paper analyzes the effects of money injections on interest rates and exchange rates in a model in which agents must pay a Baumol-Tobin style fixed cost to exchange bonds and money. Asset markets are endogenously segmented because this fixed cost leads agents to trade bonds and money only infrequently. When the government injects money through an open market operation, only those agents that are currently trading absorb these injections. Through their impact on these agents' consumption, these money injections affect real interest rates and real exchange rates. We show that the model generates the observed negative relation between expected inflation and real interest rates. With moderate amounts of segmentation, the model also generates other observed features of the data: persistent liquidity effects in interest rates and volatile and persistent exchange rates. A standard model with no fixed costs can produce none of these features.
Book
Year: 2000 Publisher: Lisboa ; Paris Centro Cultural Calouste Gulbenkian
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