Noritaka Kudoh

A global analysis of liquidity effects, interest rate rules, and deflationary traps

The prevailing models of liquidity traps suggest that a deflationary trap is a stable steady state in a multiple equilibria model. These models implicitly assume that the central bank accelerates the process of disinflation by following a Taylor rule even though there is a long run positive relationship between the nominal interest rate and inflation rate. This paper presents a reduced-form model that integrates liquidity effects into the analysis of interest rate rules to generalize the previous results about uniqueness, determinacy, and dynamic property of the economy.

POLICY INTERACTION AND LEARNING EQUILIBRIA

This paper studies fiscal--monetary policy interactions in an endogenous growth model with multiple assets. Under an interest-rate rule, there are two Pareto-ranked balanced growth equilibria. The E-stability principle is used to pin down an equilibrium. Interestingly, expectational indeterminacy arises in which the two equilibria are both E-stable. Although fiscal policy can eliminate the expectational indeterminacy, the equilibrium with a higher growth rate and higher welfare is ruled out; there is a trade-off between determinacy of expectations and economic growth.

Beauty Contests and Asset Prices under Asymmetric Information

In this paper, we study a dynamic Gaussian financial market model in which the traders form higher-order expectations about the fundamental value of a single risky asset. Rational uninformed traders are introduced into an otherwise standard differential information economy to investigate the impact of asymmetric information. In a two-period economy, there is a unique linear equilibrium; beauty contests under asymmetric information do not introduce excess volatility driven by self-fulfilling multiple equilibria. Under certain conditions, there is a nonmonotonic relationship between price volatility and the proportion of uninformed traders.

Money and price dynamics in a market with strategic bargaining

This paper studies a strategic bargaining model of money and prices to complement the results reported in Coles and Wright (1998). The probability of a bargaining breakdown is chosen to be consistent with market conditions in the spirit of Rubinstein and Wolinsky (1985). The unique monetary steady state coincides with the one under asymmetric Nash bargaining. The dynamics of the price level are determined without any reference to the value of search. The dynamic properties of the model resemble those of traditional monetary models.

A Theory of Deflation

This paper explores the link between fiscal-monetary policy interaction and deflation. The key feature of this paper is that the central banks balance sheet is separated from the governments budget constraint. As a result, government bonds are held entirely by households, and money is supplied via helicopter drops. This paper finds that helicopter money can be used as a subsidy to purchasing government bonds. Then, the central banks commitment to a low nominal interest rate implies that it must inject money to keep the price of government bonds from falling when debt increases. The injection of helicopter money also increases the demand for real money, raising the value of money.

Unemployment Policies in an Economy with Adverse Selection

This paper studies the effects of unemployment policies in a simple static general equilibrium model with adverse selection in the labour market. Firms offer a contract that induces the self-selection of workers. In equilibrium, all unskilled workers are screened out and some skilled workers are rationed out. It is shown that the provision of unemployment insurance raises involuntary unemployment by encouraging adverse selection, while unemployment assistance - or subsidy to unemployment - reduces involuntary unemployment. A simple efficiency wage model is also presented to show that either of the two policies reduces employment by taxing effort and subsidizing shirking. The key is whether the social role of unemployment is a sorting device or a worker discipline device.