Monetary Creation and the Financing of the markets efficiency - PowerPoint PPT Presentation

Monetary Creation and the Financing of the Energy Shift Gaël Giraud I. What about the Monetary Creation and the Financing of the markets efficiency hypothesis ? Energy Shift I.1. Incomplete markets I. 2. Do prices convey information ? II. The mystery of money Gaël Giraud 1 II.1. What happened to the monetary multiplier ? 1 CNRS, Paris School of Economics II.2. Creation ex nihilo ? Centre d’Economie de la Sorbonne, UMR CNRS 8174 II.3. What about Labex REFI inflation ? II.4. And the discount rate ? Houches Feb. 2014.

Monetary Creation I. What about the market Inefficiency hypothesis ? and the Financing of the Energy Shift Gaël Giraud I.1. Incomplete markets I. What about the markets efficiency hypothesis ? I.1. Incomplete markets ◦ Markets are said to be efficient whenever I. 2. Do prices convey information ? they allocate risk and capital in a first-best Pareto-optimal way. II. The mystery of money II.1. What happened to the monetary multiplier ? II.2. Creation ex nihilo ? II.3. What about inflation ? II.4. And the discount rate ?

Monetary Creation I. What about the market Inefficiency hypothesis ? and the Financing of the Energy Shift Gaël Giraud I.1. Incomplete markets I. What about the markets efficiency hypothesis ? I.1. Incomplete markets ◦ Markets are said to be efficient whenever I. 2. Do prices convey information ? they allocate risk and capital in a first-best Pareto-optimal way. II. The mystery of money ◦ Markets are complete whenever II.1. What happened to the everybody can hedge herself against any risk (at some cost). monetary multiplier ? II.2. Creation ex nihilo ? II.3. What about inflation ? II.4. And the discount rate ?

Monetary Creation I. What about the market Inefficiency hypothesis ? and the Financing of the Energy Shift Gaël Giraud I.1. Incomplete markets I. What about the markets efficiency hypothesis ? I.1. Incomplete markets ◦ Markets are said to be efficient whenever I. 2. Do prices convey information ? they allocate risk and capital in a first-best Pareto-optimal way. II. The mystery of money ◦ Markets are complete whenever II.1. What happened to the everybody can hedge herself against any risk (at some cost). monetary multiplier ? II.2. Creation ex nihilo ? ◦ A “proof” of the invisible hand: II.3. What about inflation ? Complete Markets populated by perfectly rational people are II.4. And the discount rate ? first-best efficient. Arrow & Debreu, 1950s.

Monetary Creation I. What about the market Inefficiency hypothesis ? and the Financing of the Energy Shift Gaël Giraud I.1. Incomplete markets I. What about the markets efficiency hypothesis ? I.1. Incomplete markets ◦ Markets are said to be efficient whenever I. 2. Do prices convey information ? they allocate risk and capital in a first-best Pareto-optimal way. II. The mystery of money ◦ Markets are complete whenever II.1. What happened to the everybody can hedge herself against any risk (at some cost). monetary multiplier ? II.2. Creation ex nihilo ? ◦ A “proof” of the invisible hand: II.3. What about inflation ? Complete Markets populated by perfectly rational people are II.4. And the discount rate ? first-best efficient. Arrow & Debreu, 1950s. ◦ Do you think that markets are complete ?

Monetary Creation I. What about the market Inefficiency hypothesis ? and the Financing of the Energy Shift Gaël Giraud I.1. Incomplete markets I. What about the markets efficiency hypothesis ? I.1. Incomplete markets ◦ Markets are said to be efficient whenever I. 2. Do prices convey information ? they allocate risk and capital in a first-best Pareto-optimal way. II. The mystery of money ◦ Markets are complete whenever II.1. What happened to the everybody can hedge herself against any risk (at some cost). monetary multiplier ? II.2. Creation ex nihilo ? ◦ A “proof” of the invisible hand: II.3. What about inflation ? Complete Markets populated by perfectly rational people are II.4. And the discount rate ? first-best efficient. Arrow & Debreu, 1950s. ◦ Do you think that markets are complete ? ◦ Do you think that markets will ever be complete ?

Monetary Creation and the Financing of the Energy Shift Gaël Giraud I. What about the markets efficiency hypothesis ? ◦ When markets are incomplete, first-best efficiency is no more I.1. Incomplete markets the relevant concept. I. 2. Do prices convey information ? II. The mystery of money II.1. What happened to the monetary multiplier ? II.2. Creation ex nihilo ? II.3. What about inflation ? II.4. And the discount rate ?

Monetary Creation and the Financing of the Energy Shift Gaël Giraud I. What about the markets efficiency hypothesis ? ◦ When markets are incomplete, first-best efficiency is no more I.1. Incomplete markets the relevant concept. I. 2. Do prices convey information ? II. The mystery of ◦ Second-best efficiency is the right notion. money II.1. What happened to the monetary multiplier ? II.2. Creation ex nihilo ? II.3. What about inflation ? II.4. And the discount rate ?

Monetary Creation and the Financing of the Energy Shift Gaël Giraud I. What about the markets efficiency hypothesis ? ◦ When markets are incomplete, first-best efficiency is no more I.1. Incomplete markets the relevant concept. I. 2. Do prices convey information ? II. The mystery of ◦ Second-best efficiency is the right notion. money II.1. What happened to the ◦ I.1. Incomplete markets are generically not even second-best monetary multiplier ? efficient. II.2. Creation ex nihilo ? Geanakoplos & Polemarchakis (1986), et alii. II.3. What about inflation ? II.4. And the Too bad... The invisible hand is invisible ’cause it does not exist! discount rate ?

Monetary Creation and the Financing of the Energy Shift Gaël Giraud I. What about the markets efficiency hypothesis ? I.1. Incomplete ◦ Sunspots (Roger Guesnerie, Collège de France) markets I. 2. Do prices convey information ? II. The mystery of money II.1. What happened to the monetary multiplier ? II.2. Creation ex nihilo ? II.3. What about inflation ? II.4. And the discount rate ?

Monetary Creation and the Financing of the Energy Shift Gaël Giraud I. What about the markets efficiency hypothesis ? I.1. Incomplete ◦ Sunspots (Roger Guesnerie, Collège de France) markets I. 2. Do prices convey information ? ◦ Bush in Japan (2002). II. The mystery of The tweet of April 23 2013 (Associated Press) : - 115 G in 3’ ! money II.1. What happened to the monetary multiplier ? II.2. Creation ex nihilo ? II.3. What about inflation ? II.4. And the discount rate ?

Monetary Creation and the Financing of the Energy Shift Gaël Giraud I. What about the markets efficiency hypothesis ? I.1. Incomplete ◦ Sunspots (Roger Guesnerie, Collège de France) markets I. 2. Do prices convey information ? ◦ Bush in Japan (2002). II. The mystery of The tweet of April 23 2013 (Associated Press) : - 115 G in 3’ ! money II.1. What happened to the monetary ◦ Sunspots never happen in complete markets. multiplier ? II.2. Creation ex nihilo ? II.3. What about inflation ? II.4. And the discount rate ?

Monetary Creation and the Financing of the Energy Shift Gaël Giraud I. What about the markets efficiency hypothesis ? I.1. Incomplete ◦ Sunspots (Roger Guesnerie, Collège de France) markets I. 2. Do prices convey information ? ◦ Bush in Japan (2002). II. The mystery of The tweet of April 23 2013 (Associated Press) : - 115 G in 3’ ! money II.1. What happened to the monetary ◦ Sunspots never happen in complete markets. multiplier ? II.2. Creation ex nihilo ? ◦ I.1. Incomplete markets can never be immune against sunspots. II.3. What about inflation ? (Azariadis (1974), Guesnerie, Chiappori....) II.4. And the discount rate ?

Monetary Creation and the Financing of the Energy Shift Gaël Giraud I. What about the markets efficiency ◦ Financial innovation reduces incompleteness. hypothesis ? I.1. Incomplete markets Does it reduce market inefficiency ? I. 2. Do prices convey information ? II. The mystery of money II.1. What happened to the monetary multiplier ? II.2. Creation ex nihilo ? II.3. What about inflation ? II.4. And the discount rate ?

Monetary Creation and the Financing of the Energy Shift Gaël Giraud I. What about the markets efficiency ◦ Financial innovation reduces incompleteness. hypothesis ? I.1. Incomplete markets Does it reduce market inefficiency ? I. 2. Do prices convey information ? ◦ It depends ! II. The mystery of money Elul (1995). II.1. What happened to the monetary multiplier ? II.2. Creation ex nihilo ? II.3. What about inflation ? II.4. And the discount rate ?

Monetary Creation and the Financing of the Energy Shift Gaël Giraud I. What about the markets efficiency ◦ Financial innovation reduces incompleteness. hypothesis ? I.1. Incomplete markets Does it reduce market inefficiency ? I. 2. Do prices convey information ? ◦ It depends ! II. The mystery of money Elul (1995). II.1. What happened to the monetary multiplier ? ◦ Whether a transaction finds a customer (or not) does not mean II.2. Creation ex nihilo ? anything about its usefulness. II.3. What about inflation ? E.g., Karine Berger and the French banking (non-)reform. II.4. And the discount rate ?