Commodity money with frequent search

A prominent feature of the Kiyotaki and Wright (1989) model of commodity money is the multiplicity of dynamic equilibria. We show that the frequency of search is strongly related to the extent of multiplicity. To isolate the role of frequency of search in generating multiplicity, we (i) vary the frequency of search without changing the frequency of finding a trading partner and (ii) focus on symmetric dynamic equilibria, a class for which we can sharply characterize several features of the set of equilibria. For any finite frequency of search this class retains much of the multiplicity. For each frequency we characterize the full set of equilibrium payoffs, strategies played and dynamic paths of the state variables. Indexed by any of these features, the set of equilibria converges uniformly to a unique equilibrium in the continuous search limit. We conclude that when search is frequent, the seemingly exotic dynamics are irrelevant.Money ; Markov processes

On the distribution of college dropouts: Household wealth and uninsurable idiosyncratic risk

This paper presents a dynamic model of the decision to pursue a college education in which students face uncertainty about their future income stream after graduation due to unobserved heterogeneity in their innate scholastic ability. After students matriculate and start taking exams, they reevaluate their expectations about succeeding in college and may find it optimal to drop out and join the workforce without completing an undergraduate degree. The model shows that, in accordance with the data, poorer students are less likely to graduate and are more apt to drop out earlier than are wealthier students. Our model generates these results without introducing credit constraints. Conditioning on measures of innate ability, in the data we find that poor students are at least 27 percent more likely to drop out of college and they do so sooner than wealthier students

The Elasticity of Substitution in Demand for Non-Tradable Goods in Latin America: The Case of Argentina

The objective of this paper is to estimate the elasticity of substitution in the demand for non-tradable goods relative to tradable goods in Argentina. This parameter plays a crucial role in the analysis of the macroeconomic equilibrium of a small open economy (Mendoza, Galindo and Izquierdo, 2003). Using two data sets, estimates of approximately 0. 40 and 0. 48, respectively, are found for this elasticity.

Technological Revolutions and Debt Hangovers: Is There a Link?

Abstract The Great Recession, the Great Depression, and the Japanese slump of the 1990s were all preceded by periods of major technological innovation. In an attempt to understand these facts, we estimate a model with noisy news about the future. We find that beliefs about long run income adjust with an important delay to shifts in trend productivity. This delay, together with estimated shifts in the trend of productivity in the three cases, are able to tell a common and simple story for the observed dynamics of productivity and consumption on a 20 to 25 year window. Our analysis highlights the advantages of a look at this data from the point of view of the medium run

Paying for Performance: The Education Impacts of a Community College Scholarship Program for Low-Income Adults

We evaluate the effect of performance-based incentive programs on educational outcomes for community college students from a random assignment experiment at three campuses. Incentive payments over two semesters were tied to meeting two conditions¿enrolling at least half time and maintaining a ¿C¿ or better grade point average. Eligibility increased the likelihood of enrolling in the second semester after random assignment and total number of credits earned. Over two years, program group students completed nearly 40 percent more credits. We find little evidence that program eligibility changed types of courses taken but some evidence of increased academic performance and effort

(EIEF) Option Value and Transitions in a Model of Postsecondary Education

Option value arises in environments where an investment needs to be made under uncertainty. The decision to invest in postsecondary education is a perfect example. Students, as they learn about the uncertain educational outcomes, can drop out or transfer up to harder and more rewarding schools or even down to easier and less rewarding institutions, carrying a fraction of the accumulated human capital; here, academic 2-year colleges serve as a stepping stone towards more demanding environments as it provides a cheaper learning technology. A positive theory of postsecondary education is built and contrasted empirically. Using an estimated version of the model, it is found that option value explains a large share of the returns to postsecondary education. The elimination of academic 2-colleges, with freshmen enrollment of nearly 40 % of that of 4-year colleges, would decrease total enrollment by 6 % with very limited effect on the ex-ante returns to education

The equity premium puzzle in a Markov regime switching model with rare disasters

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(EIEF) Commodity Money with Frequent Search ∗

A prominent feature of the Kiyotaki and Wright (1989) model of commodity money is the multiplicity of dynamic equilibria. We show that the frequency of search is strongly related to the extent of multiplicity. To isolate the role of frequency of search in generating multiplicity, we (i) vary the frequency of search without changing the frequency of finding a trading partner and (ii) focus on symmetric dynamic equilibria, a class for which we can sharply characterize several features of the set of equilibria. For any finite frequency of search this class retains much of the multiplicity. For each frequency we characterize the full set of equilibrium payoffs, strategies played, and dynamic paths of the state variables. Indexed by any of these features, the set of equilibria converges uniformly to a unique equilibrium in the continuous search limit. We conclude that when search is frequent, the seemingly exotic dynamics are irrelevant

On the Distribution of College Dropouts: Wealth and Uninsurable Idiosyncratic Risk

We present a dynamic model of college education where the students face uncertainty about their income stream after graduation due to unobserved heterogeneity in their innate scholastic ability. As students write exams, they reevaluate their expectations and may find it optimal to drop out and join the workforce without reaping the whole benefit of college education. The model shows that, in accordance with the data, poorer students are less likely to graduate and are more likely to drop out earlier than wealthier students. Our model generates these results without introducing credit constraints. Conditioning on measures of innate ability, we find in the data that poor students are at least 31 % more likely to drop and they do so around a year before rich students. ∗We thank Andrea Pozzi. We also benefited from comments by seminar participants at the Federal Reserve Bank of Boston. The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Boston or the Federal Reserve System. Sarojini Rao provided excellent research Around 40 % of every cohort that enrolls in 4-year U.S. colleges drops out and there is a highe

Commodity Money with Frequent Search ∗

A prominent feature of the Kiyotaki and Wright (1989) model of commodity money is the multiplicity of dynamic equilibria. We show that the frequency of search is strongly related to the extent of multiplicity. To isolate the role of frequency of search in generating multiplicity, we (i) vary the frequency of search without changing the frequency of finding a trading partner and (ii) focus on symmetric dynamic equilibria, a class for which we can sharply characterize several features of the set of equilibria. For any finite frequency of search this class retains much of the multiplicity. For each frequency we characterize the full set of equilibrium payoffs, strategies played, and dynamic paths of the state variables. Indexed by any of these features, the set of equilibria converges uniformly to a unique equilibrium in the continuous search limit. We conclude that when search is frequent, the seemingly exotic dynamics are irrelevant