Essays on the Theory of Money and Monetary Policy

by Justin D Rietz

Institution: University of California – Santa Cruz
Year: 2016
Keywords: Economics; Agent Based Model; Dual Currency; Experimental; Monetary Policy
Posted: 02/05/2017
Record ID: 2135604
Full text PDF: http://www.escholarship.org/uc/item/3dh7855m


In the first chapter, I examine in a controlled, experimental laboratory setting, the acceptance of a secondary currency when a primary currency already circulates in an economy. The underlying model is an indivisible good / indivisible money, dual currency search model similar to that in Kiyotaki and Wright (1993) and Craig and Waller (2000). In such models, there are two pure Nash equilibria - total acceptance or total rejection of the secondary currency - and one unstable, mixed equilibrium denoted as partial acceptance. This mixed equilibrium is considered an artifact of the indivisibility of money and goods in the model and is often ignored. I find that when barter between good holders is allowed, the equilibrium tends towards total rejection. Conversely, when barter is prohibited, the equilibrium tends towards total acceptance. However, in both cases, the economies as a whole display partial acceptance of the secondary currency.In the second chapter, I continue this exploration of secondary currency acceptance using agent-based models. In particular, the models employ genetic algorithms for agent learning. The results in many ways coincide with those of the laboratory experiments, though under certain parameter settings, the economies simulated in the agent-based models often converge to complete acceptance or rejection of the secondary currency.In the third chapter, I change focus and examine the impact of foreign government purchases of U.S. Treasury securities on U.S. interest rates. While several past studies have considered the impact of such flows on U.S. long-term interest rates, few, if any, have simultaneously included Federal Reserve purchases of Treasury securities. Therefore, I undertake an empirical analysis that includes both types of purchases, particularly relevant given the Fed's recent large-scale asset purchase program, and have included updated data through April 2014. I find that both foreign government and Federal Reserve Treasury purchases had a significant impact on medium and long-term yields.