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Money, prices and interest rates in a non-aggregate stochastic general equilibrium model

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  • Pedro Gutierrez

Abstract

This paper explores the relationships between money, prices, uncertainty and interest rates in a stochastic general equilibrium model. Taking a non-aggregate pure exchange economy with time and uncertainty as the starting point, money is introduced as a means to keep track of past transactions of goods and insurance services and as an instrument to settle debts. As a result, in this stochastic general equilibrium model the desire to hold money arises from the demand of goods and services, Arrow-Debreu securities, and assets. Since these sources of demand for money are strongly related to the economy output, the economy degree of uncertainty, and the interest rates, this paper provides not only an alternative framework to the traditional keynesian analysis of the liquidity preference, but also an extension of the cash-in-advance models for introducing money in a general equilibrium model.

Suggested Citation

  • Pedro Gutierrez, 2004. "Money, prices and interest rates in a non-aggregate stochastic general equilibrium model," Applied Mathematical Finance, Taylor & Francis Journals, vol. 11(4), pages 283-316.
    • Handle: RePEc:taf:apmtfi:v:11:y:2004:i:4:p:283-316
    DOI: 10.1080/13504860420000231911
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    References listed on IDEAS

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    1. Neil Wallace, 1997. "Absence-of-double-coincidence models of money: a progress report," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 21(Win), pages 2-20.
    2. Cyril Monnet & Warren E. Weber, 2001. "Money and interest rates," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 25(Fall), pages 2-13.
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    Cited by:

    1. Gutierrez, Pedro J., 2006. "Short-run and long-run effects of monetary policy in a general equilibrium model with bank reserves," Economic Modelling, Elsevier, vol. 23(4), pages 597-621, July.
    2. Keen, Steve, 2013. "A monetary Minsky model of the Great Moderation and the Great Recession," Journal of Economic Behavior & Organization, Elsevier, vol. 86(C), pages 221-235.

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