Volume 2, Issue 1, November 2000
Research Agenda: Payment Systems and Private Money, by
Stephen Williamson is Chester A. Phillips Professor of Financial
Economics at the Department of Economics, University of Iowa.
He has published extensively on monetary economics, in particular
financial intermediation and payment systems.
Studying payments systems involves both the familiar (at least to students
of monetary economics and banking) and the unfamiliar. Familiar issues
include the role of the banking system in providing means of payment, the
substitution between money and credit, and the role of monetary exchange
in economic activity. For these issues, it is often possible to address
the relevant questions with off-the-shelf monetary and banking theory.
However, some unfamiliar issues, for example involving the analysis of
arrangements for clearing and settlement, are difficult to address
without investing some time in constructing new models, and this is part
of what makes the study of payments systems and private money interesting.
Payments systems activity involves transactions using fiat objects (e.g.,
government-supplied currency), circulating physical objects (e.g. private
bank notes), checks, debit cards, credit cards, and interbank electronic
payments (through Fedwire and the CHIPS system in the U.S.).
Payments systems and private money are worthy of study for several reasons.
First, there has been rapid recent growth in alternatives to cash for
transactions. Second, in the U.S. the restrictions prohibiting the
issue of private money have been lifted. Third, given the recent advances in
information technology, payments arrangements which were formerly not
feasible now are. Fourth, with the advent of many efficient alternatives to
outside money in making transactions, and a higher volume of payments
carried out under the auspices of the central bank (for example, through
Fedwire in the U.S.), there are important issues to address concerning how
monetary policy should be conducted and how the payments system should be
regulated. Some key questions we might like to address are the following:
In modeling payments system arrangements, two key frictions are needed.
First, there must be spatial separation, so that it not be too easy for
agents to get together to coordinate exchange. Second, some form of monetary
exchange must be required to overcome spatial and information frictions; it
must be difficult for agents to engage in barter exchange. In this short
review of my recent work with Ted Temzelides, I will describe three models
of private money and payments systems, and ask what these models have to say
about the relevant issues. These ideas come from two working papers, which
are Temzelides and Williamson (2000a, 2000b).
- What are the efficiency properties of a private money system?
- Are there useful lessons from historical experience with private
money systems (U.S. pre-Civil War, Canada pre-1935)?
- How should payments systems be designed with respect to clearing and
settlement arrangements? What are the potential risk-sharing and incentive
- Does monetary policy work differently in a private money system? Do
we need a central bank?
A Model of Private Money and Settlement
This is a random matching model, which is most closely related to Williamson
(1999), which in turn used some of the structure from existing monetary
random matching models with endogenous prices, principally Shi (1995) and
Trejos and Wright (1995). Other related literature is Cavalcanti, Erosa, and
Temzelides (1999), Cavalcanti and Wallace (1999), Champ, Smith, and
Williamson (1996), and Smith and Weber (1999).
In the model, there is random matching where "local" agents are met with
higher frequency than "non-locals," and there are simple banking
arrangements which permit the issue of circulating private monies (bank
notes) and clearing arrangements across locations. In the paper, Temzelides
and Williamson (2000b), we consider two cases. First, we suppose that there
is full information, in which case the matching friction will determine
discounts on non-local bank notes. Second, we consider an environment with
private information concerning the assets backing a particular bank note, in
which case matching frictions and informational frictions will determine the
discounts on bank notes.
When there is no clearing of bank notes and full information, non-local
notes either do not circulate locally, or they circulate at a discount. The
discount arises because the value of holding a local note is higher than the
value of holding a non-local note. The difference in values is due to the
fact that non-local notes cannot be redeemed locally. Given that non-local
notes are discounted, the redemption value of a local note may be
sufficiently high that a local agent is not willing to exchange the note
with a non-local agent at the going price.
When there is full information and a clearing arrangement for bank notes
among banks, then essentially all bank notes are universally redeemable.
This implies that non-local bank notes always circulate locally, and they
will not trade at a discount. Welfare is higher, and there is more
production and exchange. Thus, it is clear that note-clearing arrangements
are a good thing when there is full information.
Now, private information about the quality of non-local bank notes changes
the story considerably. Here, there are potentially good bank notes and bad
ones, and there may be equilibria where only good notes circulate, where
only bad ones do, or where both good and bad bank notes circulate. If the
private information friction is not too severe, then we will obtain the same
results as with full information, in that clearing arrangements are socially
beneficial. However, with a sufficient private information friction,
welfare-dominated equilibria may exist, i.e. there can be a coordination
failure. Also, the clearing arrangement may increase the quantity of
low-quality money in circulation relative to high-quality money, and
clearing may not eliminate discounts.
These results have important implications for our interpretation of
historical monetary regimes where private money was issued. For example, in
the pre-Civil War United States, clearing arrangements for bank notes were
unusual. Essentially the only successful clearing arrangement was the
Suffolk system in New England. On the other hand, in Canada before 1935, all
chartered banks issued notes in a system which appeared to have worked
efficiently, with a nationwide clearing arrangement and all notes trading at
par. The difference between the U.S. system and the Canadian one can be
explained by the fact that private information frictions were much more
severe in the U.S. than in Canada. The U.S. had many unit banks, while
Canada had only a few banks with nationwide branching.
Payments and Settlement in a Deterministic Environment
This model comes from Temzelides and Williamson (2000a). The objective here
is to construct a model where there is a role for monetary exchange and
where a centralized payments arrangement can substitute for exchange using
fiat money. This model has some advantages over monetary search models in
that it relies on competitive equilibrium as an equilibrium concept, and is
simple enough that results can be obtained when money is divisible. This is
a spatial model sharing some elements with the turnpike model studied by
Townsend (1980). Related papers in the payments system literature are
Freeman (1996a, 1996b, 1998), Kahn and Roberds (1998), Fujiki, Green and
Yamazaki (1997), and Lacker (1997).
In the model, there is a countable infinity of locations, with a
producer/shopper household at each location. Each period, the producer stays
at home and produces while the shopper goes to the next location to obtain
goods. There is essentially a double-coincidence-of-wants problem. A given
household does not produce every third period, and households are arranged
in space such that each household will follow a three-cycle, where they
consume in one period but do not produce, produce and consume in the next
period, produce and do not consume in the following period, etc. In each
period, two thirds of the population will be consuming and two thirds will
produce. There are two key elements in the model: Barter is not
possible, and privately-issued IOUs will not circulate.
The approach in this paper is to consider successively sophisticated
payments arrangements, and to determine the general equilibrium implications
of these arrangements. The first arrangement is one where there is no
using fiat currency. Effectively, there are endogenous cash-in-advance
constraints, whereby households acquire cash when they produce and spend it
two periods hence. In an equilibrium with a fixed fiat money stock there
will be price dispersion, and a competitive equilibrium will be suboptimal,
for the usual reasons. That is, households economize too much on money
balances and consumption will be too low.
Now, a second arrangement is one with a centralized clearinghouse. Here,
households carry out exchange using IOUs, and these IOUs are settled on net
through the clearinghouse at the end of each period. Settlement takes place
using outside money. It is important to note that it is important that there
be net settlement; with gross settlement the equilibrium allocation is
identical to what it was with the previous arrangement. Here, there may be
multiple equilibria, which can be ranked in terms of welfare, but each of
these equilibria dominates the first arrangement in welfare terms. Thus, a
centralized payments system improves welfare, and the velocity of money also
increases. The equilibrium allocation is not Pareto optimal, however.
A Pareto optimal allocation can be achieved under a third arrangement, which
we can interpret as banking with interbank lending. Here, there is not only
within-period credit through the clearinghouse, but borrowing and lending
across periods. In this case, in spite of the fact that goods cannot be
transported across locations, an efficient allocation is achieved without
outside money. Imposing settlement in this environment, where
there is no risk, implies that the allocation will be inefficient.
A Random Matching Model with Private Information
This model, from Temzelides and Williamson (2000a), uses a dynamic
contracting approach, following Green (1987), Atkeson and Lucas (1992),
Phelan (1995), Wang (1995), Williamson (1998), and Aiyagari and Williamson
(1999), to study efficient risk-sharing and incentives under a payments
system arrangement. This model shares some of the structure of the previous
model in that there is random matching and periods when some agents cannot
produce, or do not wish to consume, but here these states occur randomly.
Each random match takes place between a household who receives a preference
shock and a productivity shock, and another household whose preferences and
technology are constant for all time. The optimal allocation is solved for,
and we interpret the solution in terms of how an optimal payments
arrangement should work. The conclusions we arrive at are the following:
- "Credit" is key to making incentives work in the payments system.
Participants who receive a bad shock (can't produce) can generally still
consume in the present, but their future liabilities to the system are
higher than they would be otherwise.
- It is important for incentive reasons that credit and risk-sharing be
internalized in the payments system.
- There are endogenous credit constraints.
- Idiosyncratic shocks are propagated through the chain of transactions.
These three models have something to say about the functioning of private
money systems and the role of payments systems in the economy. Perhaps where
they fall short is that they do not address the issue of systemic risk in
the payments system. Some policymakers are concerned that too much credit is
extended in U.S. payments systems (Fedwire, for example), and that this
leaves the system open to the possibility that the failure of a large
participant to settle a transaction could lead to a chain of failures, with
the Fed (in the case of Fedwire) left to bail everyone out. To evaluate
whether systemic risk is in fact a legitimate concern, we need more
sophisticated models of risk sharing and moral hazard in the context of
centralized payments systems.
Aiyagari, S. R. and Williamson, S. 1999. "Credit
in a Random Matching Model with Private Information
," Review of
Atkeson, A. and Lucas, R. 1992. "On Efficient Distribution with
Private Information," Review of Economic Studies
Cavalcanti, R., Erosa, A., and Temzelides, T. 1999. "Private
Money and Reserve Management in a Random Matching Model
of Political Economy
Cavalcanti, R. and Wallace, N. 1999. "Inside
Money as Alternative Media of Exchange
," Journal of Money, Credit,
Champ, B., Smith, B. and Williamson, S. 1996. "Currency
and Banking Panics: Theory and Evidence
," Canadian Journal of
Freeman, S. 1996a. "Clearinghouse Banks and Banknote Over-Issue,"
Journal of Monetary Economics
Freeman, S. 1996b. "The
Payments System, Liquidity, and
," American Economic Review
Freeman, S. 1998. "Rediscounting Under Aggregate Risk,"
forthcoming, Journal of Monetary Economics.
Fujiki, H., Green, E., and Yamazaki, A. 1997. "Sharing the Risk of
Settlement Failure," working paper, Federal Reserve Bank of Minneapolis.
Green, E. 1987. "Lending and the Smoothing of Uninsurable Income,"
in E. Prescott and N. Wallace, eds. Contractual Arrangements for
University of Minnesota Press, Minneapolis, MN.
Kahn, C. and Roberds, W. 1998. "Real-Time
Gross Settlement and
the Costs of Immediacy
," working paper, University of Illinois and
Reserve Bank of Atlanta.
Lacker, J. 1997. "Clearing, Settlement, and Monetary Policy,"
Journal of Monetary Economics
Shi, S. 1995. "Money and Prices: A Model of Search and Bargaining,"
Journal of Economic Theory
Smith, B. and Weber, W. 1998. "Private
and the Suffolk Banking System
," Journal of Money, Credit and
Temzelides, T. and Williamson, S. 2000a. "Payments
in Deterministic and Private Information Environments
," working paper,
University of Iowa.
Temzelides, T. and Williamson, S. 2000b. "Private
Money, Settlement, and Discounts
," working paper, University of Iowa.
Townsend, R. 1980. "Models of Money with Spatially Separated
Agents," in Kareken, J. and Wallace, N., eds. Models of Monetary
Federal Reserve Bank of Minneapolis, Minneapolis, MN.
Trejos, A. and Wright, R. 1995. "Search,
Money, and Prices
," Journal of Political Economy
Wang, C. 1995. "Dynamic Insurance with Private Information and
Balanced Budgets," Review of Economic Studies
Williamson, S. 1998. "Payments
Systems with Random Matching and
," Journal of Money, Credit and Banking
Williamson, S. 1999. "Private
," Journal of Money,
Credit, and Banking
Interviews Stephen Parente on the barriers to development
Stephen Parente is Assistant Professor at the Department of Economics,
University of Illinois, Urbana-Champaign. He specializes in
development economics and industrial economics, in particular technology
adoption. Parente's RePEc/IDEAS
In your work with Ed Prescott, you show how barriers to
implementations of new technologies and production processes may explain
the vast disparities of income levels across the world, disparities that
standard growth theory cannot explain. Do you think your theory could also
explain differences within OECD countries, for example why the United
States have taken over the leader role from the United Kingdom, why France
is not as rich as the United States, or why Ireland as recently gone
through a growth spurt?
Without doubt! There is a lot of evidence of firms in Europe being
far more constrained in their use of technology compared to firms in the
United States. Ford Europe is not able to use just-in-time production
processes, but Ford U.S.A. is. Martin Bailey working with the McKinsey
Global Institute documents the greater regulations faced by European firms
regarding the choice of technology and work practices in a number of
industries such as airlines, telecommunications, retailing, and banking.
So I think there is a lot of evidence that supports our theory for the
current income differences within the OECD.
You brought up Ireland. Our theory predicts that a country that currently
applies a small amount of the stock of available knowledge in the world to
the production of goods and services can realize large increases in output
if it reduces the constraints imposed on firms' technology and work
practice choices. In 1985, Ireland's per capita income was roughly 45
percent of the U.S. level, and so there was a considerable amount of
knowledge out there that Ireland failed to exploit. There were also a
considerable amount of constrains on firms. Starting in 1986, these
constraints were lowered as industries were deregulated, state enterprises
privatized, and trade barriers lowered. Following the reduction of these
barriers to technology adoption, Ireland underwent a growth spurt, just as
our theory predicts.
There is a large body of literature using models of leaders and
imitators in innovations to explain North-South differences in output. Is
your theory contradicting this?
At a very general level, I see no contradiction between our theory
and these North-South models. We purposely abstract from innovation (the
North); in our work, the stock of ideas evolves exogenously over time. We
are interested in understanding why some countries are so poor relative to
the United States today, when there is a lot of proven, available
technology they could adopt. We are not trying to account for why the
United States is so much richer today than two hundred years ago. For the
question we are interested, abstracting from innovation is reasonable.
If we had some other question in mind, say one that involves the pattern
of trade between rich and poor countries, we might use a North-South
At a very specific level, our theory does contradict those North-South
models that predict the growth rate of the South is lower under free
trade. Our theory is one of relative income levels, not relative growth
rates. In our theory, international trade has a positive effect on an
economy's relative income level, since an economy that is open has fewer
barriers to technology adoption, ceteribus paribus.
And does your theory contradict the arguments about protecting of
infant industries in developing countries?
Most definitely! Ed and I examined a number of industry studies, some
contemporaneous and others covering the industrial revolution, in an
attempt to understand why regulations were in place that prevented firms
from using better technologies and work practices. These studies led us to
the hypothesis that many of these constraints were erected by the state to
protect the interests of specialized factor suppliers vested in current
production processes. We put forth a model whereby groups with monopoly
rights over the supply of factor inputs prevent the adoption of superior
technology, and we showed that the effect of these rights on an economy's
standard of living is large.
The policy implications of our theory are pretty strong. Governments
should not give groups the incentive to organize and acquire monopoly
rights. Temporary protection of an industry, whether it be an infant or
a mature one, is far too likely to lead to permanent protection, as it
provides factor suppliers the incentive to lobby the government to grant
them monopoly rights.
Your argument relies much on the existence of industry lobbies. Why
would they arise more often and more powerfully in developing economies?
That's a good question. Prescott and I showed how the existence of
industry insider groups with monopoly rights over factor inputs to current
production processes lead to the inefficient use of inferior technology,
but we offered no theory of why societies differ in the prevalence of
these groups. Understanding this is the next important question in this
research agenda. It
is a complicated issue, and I hope that our book will stimulate work in
There probably is not a single reason for these differences. Clearly,
political institutions matter. A number of researches, including Prescott
and I, argue that market-preserving federalism, that is a political system
with a hierarchy of governments with sufficient authority at the lower
levels, is more conducive to economic development. Initial conditions
might matter as well. I have a paper that emphasizes the concentration of
land holdings two hundred years ago. The reason why this is important
for the formation of industry insider groups is that landowners want to
restrict the flow of workers out of agriculture so as to maintain a high
rental price of land. If landowners have political power, which is more
likely when land holdings are concentrated, they will have the state erect
barriers to industry start-ups, the consequence of which is that few
industries form. With fewer industries, workers in each industry have a
greater incentive to organize and obtain monopoly rights because the
demand for a particular industry's good is decreasing in the number of
industrial goods. I have another paper, still in progress that examines
the development experiences of Russia and China since market reforms.
There is a large amount of evidence that suggests that monopoly rights are
far more prevalent today in Russia compared to China. My own view on
this is that these monopoly rights are something that carried over from
central planning, which gave workers in industry rights to jobs. The
challenge here is to understand why the state in Russia chose to preserve
these rights whereas the state in China did not.
You have applied your work to the formal and industrial sector of
developing economies. But what about the the informal and/or agricultural
sectors? In particular, the fact that the difference between industrial
and agricultural productivity is much larger than in developed economies
seems to contradict your theory.
I don't think there is a contradiction here. The technology
adoption model with Prescott has only one sector, so it has really nothing
to say on these sectoral differences. However, given the success of this
theory in accounting for international income differences and development
miracles, one would obviously like to know if the model appropriately
modified can account for the structural differences observed across
countries, and over time within a given country. In a paper with Doug
Gollin and Richard Rogerson, I took up this question. Since the Parente
and Prescott technology adoption model aggregates up to the neoclassical
growth model augmented with intangible capital and with cross-country
differences in Total Factor Productivity due to differences in the size of
the barriers to technology adoption, we analyzed an agricultural extension
of the neoclassical growth model. We found that this model fails to
account for key sectoral differences observed across countries, including
the relative productivity difference you mentioned. This failure led us to
consider the role of home production, something that Richard Rogerson,
Randy Wright and I had explored within the one-sector growth model in an
earlier paper. We found that the introduction of home production goes
along way towards accounting for these sectoral differences. It doesn't
go all the way so there is surely more work to be done here. But I am
fairly confident that with a few additional modifications, the growth
model can account for the structural differences observed across countries
and across time within a given country.
Bailey, M. 1993, "Competition, Regulation and Efficiency in Service
Industries." Brookings Papers on Economic Activity, Microeconomics
Gollin, D., Parente, S. and Rogerson, R. 2000, "Farm
Work, Home Work, and International Productivity Differences
Parente, S. in progress, "Monopoly Rights as a Barrier to Economic
in Russia and China: the Advantage of Economic Backwardness," UIUC.
Parente, S. 2000, "Landowners,
Vested Interests and the Endogenous
Formation of Industry Insider Groups
," mimeo, UIUC.
Parente, S. and Prescott, E. 1994, "Barriers
to Technology Adoption and Development
," Journal of
102 (April), 298-321.
Parente, S. and Prescott, E. 1999, "Monopoly
A Barrier to Riches
," American Economic Review
Parente, S. and Prescott, E. 2000, "Barriers to
," MIT Press.
Parente, S., Rogerson, R. and Wright, R. 1999, "Household
Production and Development
," The Federal
Reserve Bank of Cleveland Economic Review
35 (QIII), 21-36.
Parente, S., Rogerson, R. and Wright, R. 2000, "Homework
Development: Home Production and the Wealth of Nations
," Journal of
108 (4), 680-687.
The Review of Economic Dynamics: A New Editorial Team
As the new Coordinating Editor of the Review of
Economics Dynamics, I want to
update you on recent developments at RED.
Since the journal was started, Thomas F. Cooley has been Coordinating
Editor and the editorial office has been at the University of Rochester.
Cooley has now left Rochester for NYU, and the editorial office for RED is
moving to the Academic Press offices in San Diego. David Turney, of
Academic Press, will be taking over most of the journal management duties
that previously had been performed by Vicki Mullen at Rochester. I am
taking over the duties of Coordinating Editor, but Cooley
will be remaining actively involved as an Editor of the journal.
In almost every respect, the journal will continue to operate as it has
over the past few years. The difference is that submissions should now be
sent to the following address:
Review of Economic Dynamics
Academic Press Editorial Office
525 "B" Street, Suite 1900
San Diego, CA 92101
submissions, are strongly encouraged. Please use truly portable PDF files
(Scientific Word is especially problematic
in this respect). The RED site has various
tips for generating PDF files. Electronic
submissions and inquiries about the status of papers in the review
process should be sent to the review email address.
I also encourage you to renew your subscription to the Review through the
Society membership. Many great papers are already scheduled for future
issues and listed on the review web site.
Review of Economic Dynamics
for Economic Dynamics: A Letter from the President
Dear SED Members and Friends:
This is my first letter to you as President of the Society for Economic
Dynamics. My first order of business is to thank Dale Mortensen for the
superb job he did as President. During his tenure we were finally able to
launch our own successful journal, the Review of Economic Dynamics,
membership in the Society grew steadily, and the annual meetings improved
in quality and the attractiveness of the locations.
The 2000 meeting of the SED was held in San Jose, Costa Rica. Alberto
Trejos was the organizer and Per Krusell was the program chairman.
Alberto and the host institution INCAE did a brilliant job. The hotel and
the local arrangements were terrific and we thank Alberto for inviting us
all to his beautiful country. The program organized by Per and Alberto
was excellent, one of the most stimulating yet.
The 2001 meetings are going to be held in Stockholm on June
28 - July 1. The organizers are David Domeij, Martin Floden, Jonathan
Heathcote, Paul Klein and Kjetil Storesletten. Ellen McGrattan is the
Program Chair. Stockholm is one of the loveliest cities in Europe
and June is the ideal time to visit. You won't want to miss it!
The call for papers is below.
Another important bit of news is that Gary Hansen has taken over as
Coordinating Editor of the Review of Economic Dynamics. I will continue
as an editor, but Gary is the person in charge of RED. There are some new
procedures for submitting manuscripts, and these can be found on the RED
web site. If you have checked the Society/Review web pages at
you will notice that they have been
completely redesigned and re-organized. This is the contribution of our
very talented designer and consultant Beata Skrzypacz, who worked with me
to produce this new look.
Please join again in support of the advancement of Economic Dynamics.
Information about how to pay your 2001 dues and your subscription to RED
I hope to see you all in Stockholm.
Thomas F. Cooley, President
Society for Economic Dynamics
for Economic Dynamics: 2001 Meetings in Stockholm
The 2001 Meetings
of the Society for Economic Dynamics will be held
- July 1 (Thursday through Sunday) 2001 at the Stockholm School of
Economics and the Stockholm University, Stockholm, Sweden. The program
chair is Ellen McGrattan. John Moore, Torsten Persson and Edward Prescott
have already committed as plenary speakers.
The Society for Economic Dynamics solicits applications for papers in all
areas of dynamic economics to be presented at this conference. Members and
nonmembers are invited to participate. The deadline for submissions is
February 1, 2001. Please use our standardized form available at
to submit an abstract, and include the
name, affiliation, address and e-mail address of the author interested in
presenting the paper. This form is required for all applicants.
Submission of the paper is optional and should be done by mailing to:
c/o Carol Blunt
Federal Reserve Bank of Minneapolis
90 Hennepin Avenue
Minneapolis, MN 55480-0291, USA
Fax transmissions will not be considered. For information concerning local
arrangements, see the conference Web page at
Productivity Growth: A New Era?
The surge in productivity growth in recent years has raised the
question of whether we are in a new economic
era, and in particular
what sustainable growth rates for the U.S. and
advanced countries look like now and in the
The Federal Reserve Bank of New York will
sponsor a conference on
productivity growth to be held November 2,
2001, in New York. The goal of the
conference is to
understand better what has occurred over the
past 5-10 years in the
arena of technological progress, and what is
likely to transpire in the
decade to come.
Selected papers will be published in a planned
special issue of the
Review of Economic Dynamics (RED) edited by
Boyan Jovanovic, and authors
will receive a
$5000 honorarium. Papers received will be
considered submissions to
both the conference and the special issue. They
will be refereed and
must meet the high academic standards of the
Further details are available at the Conference
Ljungqvist & Sargent's Recursive Macroeconomic Theory
Long available on Tom Sargent's home page, this impressive work is now
finally available in print at MIT Press. This graduate textbook is
excellent on bringing the students' (and teachers') attention on the
power of recursive methods for many issues in macroeconomics today. The
tools of trade are covered just sufficiently at the start of the book for
students to be quickly able to appreciate their usefulness, and then their
coverage in deepened with specific examples. But this is a macroeconomics
text foremost, focusing on many topics that have been addressed recently
at the frontier of research. In fact, many recent working papers are
cited, which is unusual for a textbook.
The book covers the usual subjects in dynamic macroeconomics plus several
problems that have emerged in the past decade, like incomplete
market models or dynamic contract design, often by reviewing some
The models are generally simplified in order to facilitate a compact (and
sometimes necessarily terse) presentation. This should prove very useful
as it gives a quick yet rigorous overview of the field. Also, for those
who are intimidated by the original papers, the book offers sufficient
background and intuition to make the reading of the original paper more
fruitful. The authors always encourage to read the original works, refer
to various extensions and give sometimes detailed indications on how to
solve the complex problems.
Established researchers should find this book a good read, too. First, it
helps to find a better understanding of the fields one does not follow as
intensively as one's own. Second, it is a great source of inspiration as
the book shows how the various theories are intertwined through a common
way to approach problems. This reaches beyond the methodology:
theory is now firmly integrated in macroeconomics, and dynamic general
equilibrium is now an essential ingredient to any question in the field.
This book, along with Stokey and Lucas (1989) and Judd (1998), constitute
must-reads for any serious macroeconomist.
Judd, K. 1998, "Numerical Methods in Economics
," MIT Press.
Ljungqvist, L. and Sargent, T. 2000, "Recursive
," MIT Press.
Stokey, N. and Lucas, R. (w/ Prescott, E.) 1989, "Recursive Methods in
," Harvard University Press.
Links: HoPEc: A Powerful Author Registration Tool
Ever wondered where the author of an old working paper is located now?
Ever struggled to find what an author has published since he wrote
an article? Help is available now, but it relies on the author having
registered, and this may be you. HoPEc
is an author database that enables economists to associate themselves with
they have authored among the 110,000 working papers and journal articles
in the RePEc (Research Papers in Economics) database. By registering, you
can claim authorship of your works and effectively put together a CV that
is then used by several bibliographic indices on the web. For example,
someone having found one of your works on IDEAS would be able to find your other
works and your most recent contact information with just one click.
About 900 economists have already taken advantage of this opportunity to
enhance the dissemination of their research. You can help make the
Internet a powerful research tool by registering with HoPEc, too.
The EconomicDynamics Newsletter is a free supplement to
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editors are Christian Zimmermann (RED associate editor),
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