The value of money in a dynamic equilibrium model
AbstractThis paper studies the pricing of money in an infinite-horizon economy with heterogeneous agents, incomplete financial markets and arbitrary borrowing restrictions. Purchases of the consumption good are subject to a cash-in-advance constraint. Under general conditions I show that the price of money is equal to its fundamental value, where this value is defined over all state-price processes that are compatible with the existence of no-arbitrage opportunities. This equality implies that the cash-in-advance constraint is binding infinitely often for all agents in the economy. The analysis highlights certain differences in the determination of the price of money with respect to models with money in the utility function that bear on the optimal implementation of economic policies. Copyright Springer-Verlag Berlin/Heidelberg 2006
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Bibliographic InfoArticle provided by Springer in its journal Economic Theory.
Volume (Year): 27 (2006)
Issue (Month): 1 (01)
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Web page: http://link.springer.de/link/service/journals/00199/index.htm
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- Aloisio Araujo & Mário R. Páscoa & Juan Pablo Torres-Martínez, 2006.
"Bubbles, Collateral and Monetary Equilibrium,"
Levine's Working Paper Archive
122247000000001055, David K. Levine.
- Torres-Martínez, Juan Pablo & Araújo, Aloísio Pessoa de & Páscoa, Mario Rui, 2006. "Bubbles, Collateral and Monetary Equilibrium," Economics Working Papers (Ensaios Economicos da EPGE) 614, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
- Aloisio Araujo & Mario Pascoa & Juan Pablo Torres-Martinez, 2005. "Bubbles, collateral and monetary equilibrium," Textos para discussÃ£o 513, Department of Economics PUC-Rio (Brazil).
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