Asset Prices, Substitution Effects, and the Impact of Changes in Asset Stocks / Carl E. Walsh.

Format:

Book

Author/Creator:

Walsh, Carl E.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w0566.

NBER working paper series no. w0566

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1980.

Summary:

The standard result in macroeconomic models is that an increase in the stock of government debt has an ambiguous effect on aggregate demand. Models which have derived this result have assumed that all assets are gross substitutes. Some recent work within the framework of mean-variance portfolio models, however, seems to imply that the assumption that all assets are gross substitutes is sufficient to determine whether an increase in government debt is expansionary or contractionary. This apparent inconsistency is resolved by showing that gross substitutability is sufficient to sign the impact of a change in government debt only when money is riskless. To carry out the analysis, portfolio choice and equilibrium asset prices are characterized in a new way through the use of a distance function.

Notes:

Print version record

October 1980.