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Fiat money and the value of binding portfolio constraints

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  • Mário Páscoa

    ()

  • Myrian Petrassi

    ()

  • Juan Torres-Martínez

    ()

Abstract

It is well known that, under uniform impatience, positive net supply assets are free of bubbles for non-arbitrage kernel deflators that yield finite present values of wealth. However, this does not mean that prices cannot be above the series of deflated dividends for the deflators given by the agents' marginal rates of substitution, which also yield finite present values of wealth. In particular, binding no-short-sales constraints lead to positive prices of fiat money. Also, monetary equilibria are Pareto improvements but they are still inefficient.

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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 46 (2011)
Issue (Month): 2 (February)
Pages: 189-209

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Handle: RePEc:spr:joecth:v:46:y:2011:i:2:p:189-209

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Related research

Keywords: Binding portfolio constraints; Fundamental value of money; Asset pricing bubbles; D50; D53; E41; E44;

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References

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  1. Páscoa, Mario Rui & Araújo, Aloísio Pessoa de & Barbachan, José Fajardo, 2003. "Endogenous Collateral," Economics Working Papers (Ensaios Economicos da EPGE) 511, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  2. Mário R. Páscoa & Myrian Petrassi & Juan Pablo Torres-Martínez, 2009. "Fiat Money and the Value of Binding Portfolio Constraints," Working Papers Series 176, Central Bank of Brazil, Research Department.
  3. 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.
  4. Elyégs Jouini & Hédi Kallal, 1995. "Arbitrage In Securities Markets With Short-Sales Constraints," Mathematical Finance, Wiley Blackwell, vol. 5(3), pages 197-232.
  5. Grandmont, Jean-Michel & Younes, Yves, 1973. "On the Efficiency of a Monetary Equilibrium," Review of Economic Studies, Wiley Blackwell, vol. 40(2), pages 149-65, April.
  6. Manuel S. Santos & Michael Woodford, 1997. "Rational Asset Pricing Bubbles," Econometrica, Econometric Society, vol. 65(1), pages 19-58, January.
  7. Magill, M. & Quinzii, M., 1993. "Icomplete Markets Over an Infinite Horizon: Long-Lived Securities and Speculative Bubbles," Papers 9321, Southern California - Department of Economics.
  8. Grandmont, Jean-Michel & Younes, Yves, 1972. "On the Role of Money and the Existence of a Monetary Equilibrium," Review of Economic Studies, Wiley Blackwell, vol. 39(3), pages 355-72, July.
  9. Hahn, Frank H, 1973. "On Transaction Costs, Inessential Sequence Economies and Money," Review of Economic Studies, Wiley Blackwell, vol. 40(4), pages 449-61, October.
  10. Laibson, David, 1998. "Life-cycle consumption and hyperbolic discount functions," European Economic Review, Elsevier, vol. 42(3-5), pages 861-871, May.
  11. Hernandez D., Alejandro & Santos, Manuel S., 1996. "Competitive Equilibria for Infinite-Horizon Economies with Incomplete Markets," Journal of Economic Theory, Elsevier, vol. 71(1), pages 102-130, October.
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Cited by:
  1. Emma Moreno-García & Juan Torres-Martínez, 2012. "Equilibrium existence in infinite horizon economies," Portuguese Economic Journal, Springer, vol. 11(2), pages 127-145, August.
  2. Mário Páscoa & Myrian Petrassi & Juan Pablo Torres-Martínez, 2008. "Fiat money and the value of binding portfolio constraints," Working Papers wp283, University of Chile, Department of Economics.
  3. Jean-Marc Bottazzi & Jaime Luque & Mario R. Pascoa, 2011. "Trading and rational security pricing bubbles," Economics Working Papers we1119, Universidad Carlos III, Departamento de Economía.
  4. Aloisio Araujo & Mário Páscoa & Juan Pablo Torres-Martínez, 2008. "Long-lived Collateralized Assets and Bubbles," Working Papers wp284, University of Chile, Department of Economics.

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