Essays on money and information.
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This dissertation consists of three distinct essays. Essay 1: On the sluggish response of prices to money in an inventory-theoretic model of money demand (with Fernando Alvarez and Andrew Atkeson). We exposit the link between money, velocity and prices in an inventory-theoretic model of the demand for money and explore the extent to which such a model can account for the short-run volatility of velocity, the negative correlation of velocity and the ratio of money to consumption, and the resulting stickiness of the aggregate price level relative to a benchmark model with constant velocity. We find that an inventory-theoretic model of the demand for money is a natural framework for understanding these aspects of the dynamics of money, velocity and prices in the short run.;Essay 2: Self-insurance, social insurance, and the optimum quantity of money. The long-run optimality of deflationary monetary policy is examined in an incomplete markets setting. In the model, a deflationary policy has the standard benefit of raising the rate of return on real balance holdings, which makes consumption-smoothing relatively cheap for those households that want to save. However, for households that want to but cannot borrow---because of the market incompleteness---the lump-sum taxes implied by a deflationary policy result in lower consumption. An optimal policy has to trade off these costs and benefits and can involve using inflation to redistribute resources in favor of would-be borrowers.;Essay 3: Information and the limits to autocracy. Will the information technology revolution make autocratic regimes easier to overthrow? Probably not. I describe a game between one such regime and a large number of individuals. Individuals face a coordination problem: the more people act against the regime, the more likely it is to be overthrown and the greater the incentive for any individual to also act against it. Individual decisions are based on public and private information. The internet revolution, modeled as better private information, may make otherwise formidable regimes easier to overthrow. But knowing this, regimes engage in propaganda---they manipulate information. I characterize this manipulation and demonstrate that it may be used to more than offset the threat of new and relatively diffuse technologies like the internet. In particular, control of centralized technologies like television and radio provides a powerful tool with which autocratic regimes may shape beliefs and so ensure their survival.