This paper presents a parametric example of a one-asset exchange economy in which the asset price is endogenously determined. It is demonstrated that the volatility of the asset's price uniformly violates the theoretical upper bound implied by the present value relation. In addition, the variance bounds may be violated by a significant margin at the same time the asset's price is almost a random walk. The example has a dual interpretation as a consumption function, and under this interpretation it is demonstrated that the permanent-income hypothesis does not necessarily restrict the time-series properties of consumption.

This paper presents a parametric example of a one-asset exchange economy in which the asset price is endogenously determined. It is demonstrated that the volatility of the asset's price uniformly violates the theoretical upper bound implied by the present value relation. In addition, the variance bounds may be violated by a significant margin at the same time the asset's price is almost a random walk. The example has a dual interpretation as a consumption function, and under this interpretation it is demonstrated that the permanent-income hypothesis does not necessarily restrict the time-series properties of consumption.

Farley W. Grubb's recent papers on the early U.S. monetary system would be important contributions to the common currency area literature were not most of their historical assertions questionable and their key assumption—that the medium of exchange can be inferred from the unit of account—dubious. We contend that after 1781 most Americans eschewed government paper money in favor of fullbodied coins and convertible bank liabilities and that, contrary to Grubb's claim, bankers did not foist the constitutional clause banning state emissions onto an unsuspecting public.