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Monetary equilibria over an infinite horizon

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  • Gaetano Bloise

    ()

  • Jacques Dréze

    ()

  • Herakles Polemarchakis

    ()

Abstract

Money provides liquidity services through a cash-in-advance constraint. The exchange of commodities and assets extends over an infinite horizon under uncertainty and a sequentially complete asset market. Monetary policy sets the path of rates of interest and accommodates the demand for balances through open market operations or loans. A public authority, which, most pertinently, inherits a strictly positive public debt, raises revenue from taxes and seignorage, and it distributes possible budget surpluses to individuals through transfers. Competitive equilibria exist, under mild solvency conditions. But, for a fixed path of rates of interest, there is a non-trivial multiplicity of equilibrium paths of prices of commodities. Determinacy requires that, subject to no-arbitrage and in addition to rates of interest, the prices of state-contingent revenues be somehow determined. Copyright Springer-Verlag Berlin/Heidelberg 2005

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File URL: http://hdl.handle.net/10.1007/s00199-004-0472-x
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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 25 (2005)
Issue (Month): 1 (01)
Pages: 51-74

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Handle: RePEc:spr:joecth:v:25:y:2005:i:1:p:51-74

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Related research

Keywords: Money; Equilibrium; Indeterminacy; Monetary policy; Fiscal policy.;

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  1. Magill, M. & Quinzii, M., 1988. "Real Effects Of Money In General Equilibrium," Papers 8826, Southern California - Department of Economics.
  2. Magill, M. & Quinzii, M., 1992. "Infinite Horizon Incomplete Markets," Papers 413a, California Davis - Institute of Governmental Affairs.
  3. G. Bloise & J.H. Dreze & H.M. Polemarchakis, 2002. "Money and Indeterminacy Over an Infinite Horizon," Working Papers 2002-12, Brown University, Department of Economics.
  4. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
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