Money velocity and asset prices in a monetary general equilibrium model.
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文摘
There has been a resurgence of interest in explaining money velocity and asset prices within monetary general equilibrium models in recent years. Empirical simulations of these models have not yet provided a coherent explanation of the data, especially of money velocity. In my dissertation I develop a monetary general equilibrium model and employ monetary aggregation theory to investigate three topics in monetary and financial economics literature: (a) the variations of money velocity and asset prices, (b) the instability of a money velocity function, and (c) the equilibrium relationship among stock prices, interest rates, and money.;In the first topic, I have derived equations for money velocity and asset prices. The model includes the impact of interest payments on monetary assets on the behavior of money velocity. It is found that the aggregate user cost dual to the Divisia monetary aggregate is the relevant determinant of money velocity. A numerical approach is used to solve money velocity, inflation, and asset prices. The model can generate volatile money velocity, negative correlation between inflation and real asset return, and negative correlation between real stock prices and money velocity. These results match the data well.;In the second topic, I further investigate the instability of a traditional money velocity function. It is found that the degree of consumers' risk aversion and the level of interest rate uncertainty affect the coefficients of the traditional money velocity equation. Therefore, if interest rate uncertainty is time-varying, the traditional money velocity equation will become unstable. Numerical simulation of the model and an estimation of random coefficient model confirm this theoretical prediction.;In the third topic of my dissertation I derive an equilibrium relationship among stock prices, money (expenditures on monetary services or monetary aggregates), and interest rates. Cointegration tests are carried out. Significant cointegration vectors are found among these variables, which can be interpreted as consistent with the theoretical equilibrium relationship. The results have important implications for monetary transmission mechanisms.