Hostname: page-component-cd9895bd7-mkpzs Total loading time: 0 Render date: 2024-12-28T02:10:55.483Z Has data issue: false hasContentIssue false
  • English
  • Français

A NOTE ON THE ROBUSTNESS OF THE TOBIN EFFECT IN INCOMPLETE MARKETS

Published online by Cambridge University Press:  14 December 2005

MAKOTO SAITO  and
YOSUKE TAKEDA
MAKOTO SAITO
Affiliation:
Hitotsubashi University
YOSUKE TAKEDA
Affiliation:
Sophia University
Get access Rights & Permissions [Opens in a new window]

Abstract

Taking Dutta and Kapur's study (Review of Economic Studies 65, 551–572, 1998) as a case of the Tobin effect, this note investigates the extent to which the Tobin effect persists with the addition of sophisticated financial instruments in incomplete markets. On one hand, after dynamic contracts are introduced to the fullest extent, money demand as a precautionary device is crowded out completely, and there is thus no room for the Tobin effect to persist. On the other hand, the Tobin effect may be strengthened under conditions of coexistence of fiat money and dynamic insurance contracts with limited transfers thanks to relaxed incentive compatibility conditions in a moderately inflationary environment.

Keywords

Optimal Monetary PolicyIncentive Compatibility ConstraintIrreversible InvestmentTobin Effect
Type
NOTE
Information
Macroeconomic Dynamics , Volume 10 , Issue 1 , February 2006 , pp. 131 - 143
Copyright
© 2006 Cambridge University Press

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Aiyagari S. Rao and Stephen D. Williamson 2000 Money and dynamic credit arrangements with private information. Journal of Economic Theory 91, 248– 279.Google Scholar
Allen Franklin 1985 Repeated principal–agent relationships with lending and borrowing. Economic Letters 17, 27– 31.Google Scholar
Cole Harold L. and Narayana R. Kocherlakota 2001 Efficient allocations with hidden income and hidden storage. Review of Economic Studies 68, 523– 542.Google Scholar
Dutta Jayasri and Sandeep Kapur 1998 Liquidity preference and financial intermediation. Review of Economic Studies 65, 551– 572.Google Scholar
Farmer Roger E. A. 1988 Money and contracts, Review of Economic Studies 55, 431– 446.Google Scholar
Green Edward J. 1987 Lending and the smoothing of uninsurable income. In Edward C. Prescott and Neil Wallace (eds.), Contractual Arrangements for Intertemporal Trade, pp. 3– 25, Minneapolis: University of Minnesota Press.
Hornstein Andreas and Per Krusell 1993 Money and insurance in a turnpike environment. Economic Theory 3, 19– 34.Google Scholar
Kim Young Sik 2003 Money, growth, and risk sharing with private information. Review of Economic Dynamics 6, 276– 299.Google Scholar
Kitagawa Akiomi 2001 Does money always make people happy? Review of Economic Dynamics 4, 495– 515.Google Scholar
Kiyotaki Nobuhiro and John Moore 1997 Credit cycles. Journal of Political Economy 105, 211– 48.Google Scholar
Thomas Jonathan P. and Tim Worrall 1990 Income fluctuations and asymmetric information: An example of a repeated principal–agent problem. Journal of Economic Theory 51, 367– 390.Google Scholar
Tobin James 1955 A dynamic aggregative model. Journal of Political Economy 23, 103– 115.Google Scholar
Tobin James 1965 Money and economic growth. Econometrica 33, 671– 684.Google Scholar
Townsend Robert M. 1982 Optimal multiperiod contracts and the gain from enduring relationships under private information. Journal of Political Economy 90, 1166– 1186.Google Scholar
Woodford Michael 1990 The optimum quantity of money. In Benjamin M. Friedman and Frank H. Hahn (eds.), Handbook of Monetary Economics, vol. II, pp. 1067– 1152. Amsterdam: North-Holland.