| In the first chapter, I study a stationary monetary equilibrium in a Baumol-Tobin exchange economy with two assets (money and bonds) and long-lived, heterogeneous consumers who face uninsurable idiosyncratic endowment risk. I characterize the theoretical properties and evaluate the model quantitatively by using calibrated parameters. First, increasing the exogenous growth rate of money increases the nominal interest rate and velocity of money, but decreases the real interest rate, in accordance with the Mundell-Tobin effect. The presence of the Mundell-Tobin effect makes clear the contrast with models with complete financial markets, in which I show that the steady-state real interest rate is equal to the common discount rate of consumers. Second, when the exogenous transaction cost is reduced, the nominal and real interest rates fall and the velocity of money increases. Third, I quantify the welfare consequences of Friedman's rule. Friedman's rule may reduce average welfare because changes in the lump-sum taxation induce redistributions across consumers.; In the second chapter, which is joint with Ingolf Schwarz, we study a two-period general equilibrium model with incomplete markets (GEI) and a cash-in-advance constraint. The central bank either pegs the interest rate or money supply while the fiscal authority sets a Ricardian or a non-Ricardian fiscal plan. We prove the existence of equilibria in all four scenarios. In Ricardian economies, the conditions required for existence are not more restrictive than in standard GEL In non-Ricardian economies, the sufficient conditions for existence are more demanding. In the Ricardian economy, neither the price level nor the equivalent martingale measure is determinate.; In the third chapter, which is joint with Ingolf Schwarz, we study a two-period Baumol-Tobin model. The central bank may peg the interest rate or control the money supply. If the fiscal authority sets a Ricardian fiscal plan through redistributing its seigniorage and tax income at each state, under standard conditions there exists a monetary equilibrium for any strictly positive price level and equivalent martingale measure. Under a non-Ricardian fiscal policy with exogenously fixed nominal transfers, the existence result can be established as long as the government maintains a strictly positive commodity tax. |
