Three Essays on Quality of Government, inancial Intermediation and Monetary Policy
Date Issued
2008
Date
2008
Author(s)
Chang, Te-Tsun
Abstract
The thesis consists of two parts. We first determine the relative rewards to and allocation of talent between producers, private rent-seekers and bureaucrats in a general equilibrium model.Unproductive activity creates a negative externality on the relative rewards to producers. Multiple equilibria exist that differ in the size of bureaucracy. If private rent-seeking is exogenously given,the equilibrium with a smaller bureaucracyields higher welfare. If private rent-seeking is endogenously determined, the externality is strengthened, necessitating a larger bureaucracy. The size of government and economic performance are jointly determined, and their relationship is not necessarily negative. Our result supports the view that the size of government does not matter much; what is important is the quality of government.n next two chapters, we construct a model based on Lagos and Wright (2005) by incorporating financial intermediation to study the monetary transmission mechanism. With full enforcement, money injections only affects inflation but not real course of economy. With limited enforcement, there is a loan constraint, a cost on the intermediation process. Monetary injections through banks reduce the cost and thus induce a liquidity effect. If agents canse checks as a means of payment, however, the consumption mayall: since consumption depends on the total value of portfolio,hich decreases as interest rates do.
Subjects
Rent-seeking
Quality of Government
Size of Government
Liquidity effect
Taylor Rule
means of payment
Type
thesis
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