ECON 4721, Money & Banking

Reference: Modeling Monetary Economics (2016, Fourth Edition, Cambridge University Press) by Bruce Champ, Scott Freeman and Joseph Haslag.

Consider an overlapping generations model with agents who live for two periods --- young and old. Agents live in two distinct locations. Population size is constant in both locations. Only the young have an endowment, but agents want to consume in both periods of their lives. They can save in fiat money, capital or deposits when banks are present. Capital has a strictly larger rate of return than fiat money and also larger than one. With a positive probability, an agent has to move when they become old, which they do not know when making their saving decision. Capital cannot be transported and agents cannot write contracts based on their capital. Does the Planner's problem exhibits any interesting properties? If so, what? With a competitive banking sector in the economy, can the central bank choose such a monetary policy that this interesting property is satisfied in equilibrium in the decentralized economy? What does this imply for inflation? How does it affect seigniorage revenue?