Essays on Monetary Theory and Policy
This dissertation consists of two essays concerning Monetary Theory and Policy. Essay 1, "Monetary Policy and Asset Prices", develops a dynamic model in which money and a financial asset compete as media of exchange. We show that money circulates if and only if real assets are scarce, in the sense that their supply is not sufficient to satisfy the demand for liquidity. Our model also generates a connection between asset prices and monetary policy. When money grows at a higher rate, inflation is higher and the return on money decreases. In equilibrium, no arbitrage amounts to equating the real return of both objects. Thus, the price of the asset increases in order to lower its real return. Essay 2, "Monetary Policy and Interest Rates with Collateralized Borrowing", proposes a model of money that analyzes collateral and its interaction with monetary policy and interest rates. The value of the asset that serves as collateral, which is specific to each agent, plays a crucial role. This asset is different from fiat money and a standard financial asset. Therefore, its valuation is not standard. I prove existence and uniqueness of equilibrium in an environment where the Mundell-Tobin effect is not present. Heterogeneity of borrowers has a relevant effect on the impact of changes in the interest rates.
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