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One essay on time-inconsistent preferences and competitive equilibrium and two essays on optimal monetary policy

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Kokonas, Nikolaos (2013) One essay on time-inconsistent preferences and competitive equilibrium and two essays on optimal monetary policy. PhD thesis, University of Warwick.

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Abstract

The first part of the thesis investigates the characterization of asset prices
and investor's behavior under time-inconsistent preferences. For the latter
type of preferences, we assume myopia or hyperbolic-discounting (HD).
We consider an infinite horizon economy under certainty with two heterogeneous
CRRA individuals, one good and one long-lived asset. The question
of survival in the market arises when individuals are HD maximizers or myopic
with wrong expectations about equilibrium asset prices. We provide
sufficient conditions such that more myopic individuals dominate over less
myopic ones and also sophisticated HD maximizers with intertemporal elasticity
of substitution (IES) equal to one, log-utilities, dominate over HD
maximizers with IES higher than one. Thus, individuals that vanish in the
long-run will not have an impact on asset prices. On the other hand, asset
prices are characterized by extreme dynamics if the economy is populated
by myopic individuals only, who have perfect foresight about equilibrium
asset prices. We show that even though the dividends of the long-lived asset
are constant over time, there exist asset price dynamics that resemble an
ever-expanding asset price bubble.
The second part of the thesis investigates the characterization of optimal
monetary policy under two different scenaria. In the first scenario we consider
a two-period monetary economy with inside and outside money and an
environment with fix prices and excess capacities in equilibrium. If unemployment
is of a keynesian nature, a Friedman rule argument characterizes
optimal monetary policy whereas if unemployment is of a more classical nature,
high real wages, optimal policy requires positive nominal rates. In the
second scenario we consider an economy with idiosyncratic risk and credit
frictions. Monetary policy provides missing insurance due to credit frictions
through the distribution of non-contingent seignorage transfer across states.

Item Type: Thesis (PhD)
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Library of Congress Subject Headings (LCSH): Equilibrium (Economics), Investments -- Econometric models , Monetary policy, Investment analysis
Official Date: July 2013
Dates:
DateEvent
July 2013Submitted
Institution: University of Warwick
Theses Department: Department of Economics
Thesis Type: PhD
Publication Status: Unpublished
Supervisor(s)/Advisor: Polemarchakis, H. M. (Heraklis M.); Carvajal, Andrés M.
Extent: xiv, 215 leaves.
Language: eng

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