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2000 Working Papers

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Banking and the Political Support for Dollarization
By Huberto M. Ennis
Working Paper 00-12
Released: December 2000

In this paper we study dollarization as a commitment device that the Central Bank could use to avoid getting involved in an undesirable banking-sector bailout. We show how a political process could induce an equilibrium outcome that differs from the one...

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Incentives, Communication, and Payment Instruments
By John A. Weinberg & Edward Simpson Prescott
Working Paper 00-11
Released: November 2000

Alternative payment instruments are studied in an economy with private information, delayed communication, and limited commitment. Attention is restricted to checks and bank drafts, which differ in resource cost and communication characteristics. ...

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Optimal Monetary Policy
By Alexander L. Wolman, Robert G. King & Aubhik Khan
Working Paper 00-10
Released: October 2000

Optimal monetary policy maximizes welfare, given frictions in the economic environment. Constructing a model with two sets of frictions - the Keynesian friction of costly price adjustment by imperfectly competitive firms and the Monetarist friction of...

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The Behavior of the Real Rate of Interest Over the Business Cycle
By Brian Scholl & Michael Dotsey
Working Paper 00-9
Released: September 2000

In this paper we document real rate behavior. We do this by looking across a wide variety of constructed real rate series. These series are obtained by using a number of different methodologies for estimating expected inflation, using several different...

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Firms as Clubs in Walrasian Markets with Private Information
By Robert M. Townsend & Edward Simpson Prescott
Working Paper 00-8
Released: September 2000

Using private information and club theories, this paper develops a theory of firms in general equilibrium. Firms are defined to be assignments of technologies and agents to clubs. In equilibrium, firms form endogenously and multiple types may co-exist...

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Monetary Policy Frameworks and Indicators for the Federal Reserve in the 1920s
By Thomas M. Humphrey
Working Paper 00-7
Released: September 2000

The 1920s and 1930s saw the Fed reject a state-of-the-art empirical policy framework for a logically defective one. Consisting of a quantity theoretic analysis of the business cycle, the former framework featured the money stock, price level, and real...



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Medicine Worse than the Malady: Cure Rates, Population Shifts, and Health Insurance
By Robert F. Graboyes
Working Paper 00-6
Released: September 2000

We examine the welfare effects of the interaction of three types of technological progress in medicine and health insurance; some paradoxes emerge. The model specifies three types of people: W (well); H (sick with high cure rate if treated); and L (sick...

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Getting Better, Feeling Worse: Cure Rates, Health Insurance, and Welfare
By Robert F. Graboyes
Working Paper 00-5
Released: September 2000

We model a health insurance market where rising cure rates for a disease may paradoxically diminish welfare and even negate the desirability of health insurance altogether. In the model, rising cure rates can affect welfare in two ways: (1) directly, by...

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Our Money or Your Life: Indemnities vs. Deductibles in Health Insurance
By Robert F. Graboyes
Working Paper 00-4
Released: September 2000

When the value of a medical treatment differs across individuals, it may be socially beneficial to treat some, but not all, patients. If individuals are ignorant of their health status ex ante, they should be willing to purchase insurance fully...

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Overcoming the Zero Bound on Interest Rate Policy
By Marvin Goodfriend
Working Paper 00-3
Released: September 2000

The paper proposes three options for overcoming the zero bound on interest rate policy: a carry tax on money, open market operations in long bonds, and monetary transfers. A variable carry tax on electronic bank reserves could enable a central bank to...



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Optimal Taxation in Life-Cycle Economies
By Andrés Erosa & Martin Gervais
Working Paper 00-2
Released: September 2000

We use a very standard life-cycle growth model, in which individuals have a labor-leisure choice in each period of their lives, to prove that an optimizing government will almost always find it optimal to tax or subsidize interest income. The intuition...

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Investigating Fluctuations in U.S. Manufacturing: What are the Direct Effects of Informational Frictions?
By Pierre-Daniel G. Sarte & Wenli Li
Working Paper 00-1
Released: July 2000

In this paper, we explore how informational frictions in credit markets directly affect U.S. manufacturing fluctuations. Within the context of a dynamic industry model, we propose a strategy for identifying intermediation costs related to informational...

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