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On the disequilibrium dynamics of sequential monetary economies

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  • van der Hoog, Sander

Abstract

The purpose of this paper is to study the dynamic behavior of a sequential monetary exchange economy. Transactions take place sequentially against non-equilibrium prices, there is quantity rationing, and credit or cash are the only means of exchange. Agents have optimistic or pessimistic expectations about quantity constraints that represent their beliefs about future trading opportunities. In the credit model the agents incur debts along the transition path towards equilibrium, while in the cash-in-advance model convergence takes place without the occurrence of any debts or claims. The credit mechanism is shown to act as a 'soft' correction mechanism on credit fluctuations, while the cash-in-advance constraint acts as a 'hard' negative feedback effect driving the prices back towards a neighborhood of a monetary cash-in-advance equilibrium.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 68 (2008)
Issue (Month): 3-4 (December)
Pages: 525-552

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Handle: RePEc:eee:jeborg:v:68:y:2008:i:3-4:p:525-552

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Keywords: Circular exchange Trading posts Effective demand Quantity expectations Moving-horizon optimization;

References

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  1. Benassy, Jean-Pascal, 1975. "Neo-Keynesian Disequilibrium Theory in a Monetary Economy," Review of Economic Studies, Wiley Blackwell, vol. 42(4), pages 503-23, October.
  2. Robert L. Axtell, 2000. "Effect of Interaction Topology and Activation Regime in Several Multi-Agent Systems," Working Papers 00-07-039, Santa Fe Institute.
  3. Weddepohl, Claus, 1995. "A cautious price adjustment mechanism: Chaotic behavior," Journal of Economic Behavior & Organization, Elsevier, vol. 27(2), pages 293-300, July.
  4. Rob Axtell, 1999. "The Complexity of Exchange," Computing in Economics and Finance 1999 211, Society for Computational Economics.
  5. Zappia, Carlo, 2001. "Equilibrium and Disequilibrium Dynamics in the 1930s," Journal of the History of Economic Thought, Cambridge University Press, vol. 23(01), pages 55-75, March.
  6. Clower, Robert & Leijonhufvud, Axel, 1975. "The Coordination of Economic Activities: A Keynesian Perspective," American Economic Review, American Economic Association, vol. 65(2), pages 182-88, May.
  7. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-54, August.
  8. Saari, Donald G, 1985. "Iterative Price Mechanisms," Econometrica, Econometric Society, vol. 53(5), pages 1117-31, September.
  9. Green, Jerry, 1980. "On the Theory of Effective Demand," Economic Journal, Royal Economic Society, vol. 90(358), pages 341-53, June.
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Cited by:
  1. Lengnick, Matthias & Krug, Sebastian & Wohltmann, Hans-Werner, 2012. "Money creation and financial instability: An agent-based credit network approach," Economics Working Papers 2012-15, Christian-Albrechts-University of Kiel, Department of Economics.

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