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Money and risk sharing

Version 2 2024-06-13, 10:35
Version 1 2017-07-26, 12:34
journal contribution
posted on 2024-06-13, 10:35 authored by RR Reed, CJ Waller
We study the use of money for sharing consumption risk. In our model, agents randomly receive endowments at some points in time and produce at other points. Due to information frictions, agents cannot use intertemporal contracts to share risk. The use of money allows agents to overcome these information frictions. The Friedman rule is shown to generate efficient risk sharing. Furthermore, we quantify the welfare costs of incomplete risk sharing and find that with 10% inflation, the welfare cost of inefficient risk sharing is approximately 1%-1.5% of steady-state consumption.

History

Journal

Journal of money, credit, and banking

Volume

38

Pagination

1599-1618

Location

Columbus, Ohio

ISSN

0022-2879

eISSN

1538-4616

Language

eng

Publication classification

C1.1 Refereed article in a scholarly journal

Copyright notice

2006, Ohio State University

Issue

6

Publisher

Ohio State University Press

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