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Full-Text Articles in Social and Behavioral Sciences
The Harmonic Fisher Equation And The Inflationary Bias Of Real Uncertainty, Ioannis Karatzas, Martin Shubik, William D. Sudderth, John Geanakoplos
The Harmonic Fisher Equation And The Inflationary Bias Of Real Uncertainty, Ioannis Karatzas, Martin Shubik, William D. Sudderth, John Geanakoplos
Cowles Foundation Discussion Papers
The classical Fisher equation asserts that in a nonstochastic economy, the inflation rate must equal the difference between the nominal and real interest rates. We extend this equation to a representative agent economy with real uncertainty in which the central bank sets the nominal rate of interest. The Fisher equation still holds, but with the rate of inflation replaced by the harmonic mean of the growth rate of money. Except for logarithmic utility, we show that on almost every path the long-run rate of inflation is strictly higher than it would be in the nonstochastic world obtained by replacing output …
Inflationary Bias In A Simple Stochastic Economy, Ioannis Karatzas, Martin Shubik, William D. Sudderth, John Geanakoplos
Inflationary Bias In A Simple Stochastic Economy, Ioannis Karatzas, Martin Shubik, William D. Sudderth, John Geanakoplos
Cowles Foundation Discussion Papers
We construct explicit equilibria for strategic market games used to model an economy with fiat money, one nondurable commodity, countably many time- periods, and a continuum of agents. The total production of the commodity is a random variable that fluctuates from period to period. In each period, the agents receive equal endowments of the commodity, and sell them for cash in a market; their spending determines, endogenously, the price of the commodity. All agents have a common utility function, and seek to maximize their expected total discounted utility from consumption. Suppose an outside bank sets an interest rate rho for …