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Money and Indeterminacy Over an Infinite Horizon

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Money provides liquidity services through a cash-in-advance constraint. The exchange of commodities and assets extends over an infinite horizon under uncertainty and complete asset market. Monetary policy sets the path of rates of interest and accommodates the demand for balances. Competitive equilibria exist. 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-artibrage and in addition to rates of interest, the prices of state-contingent revenues be somehow determined.

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Paper provided by Brown University, Department of Economics in its series Working Papers with number 2002-12.

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Date of creation: 2002
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Handle: RePEc:bro:econwp:2002-12

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Postal: Department of Economics, Brown University, Providence, RI 02912

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  1. David K. Levine & William R. Zame, 1993. "Debt Constraints and Equilibrium in Infinite Horizon Economies with Incomplete Markets," UCLA Economics Working Papers 703, UCLA Department of Economics.
  2. Cochrane, John H, 2001. "Long-Term Debt and Optimal Policy in the Fiscal Theory of the Price Level," Econometrica, Econometric Society, vol. 69(1), pages 69-116, January.
  3. Magill, M. & Quinzii, M., 1992. "Infinite Horizon Incomplete Markets," DELTA Working Papers 92-26, DELTA (Ecole normale supérieure).
  4. Debreu, Gerard, 1970. "Economies with a Finite Set of Equilibria," Econometrica, Econometric Society, vol. 38(3), pages 387-92, May.
  5. Foley, Duncan K., 1970. "Economic equilibrium with costly marketing," Journal of Economic Theory, Elsevier, vol. 2(3), pages 276-291, September.
  6. DREZE, Jacques & POLEMARCHAKIS, Heracles, 1995. "Monetary equilibria," CORE Discussion Papers 1995078, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. Florenzano, Monique & Gourdel, Pascal, 1993. "Incomplete markets in infinite horizon : debt constraints versus node prices," CEPREMAP Working Papers (Couverture Orange) 9329, CEPREMAP.
  8. Kevin Huang & Jan Werner, 2004. "Implementing Arrow-Debreu equilibria by trading infinitely-lived securities," Economic Theory, Springer, vol. 24(3), pages 603-622, October.
  9. Chiappori, P.A. & Guesnerie, R., 1993. "Rational Random Walks," DELTA Working Papers 93-07, DELTA (Ecole normale supérieure).
  10. Gaetano Bloise & J. H. Dreze & H. M. Polemarchakis, 2003. "Monetary Equilibria over an Infinite Horizon," Discussion Papers 03-19, University of Copenhagen. Department of Economics.
  11. Tomoyuki Nakajima & Herakles Polemarchakis, 2005. "Money and Prices Under Uncertainty," Review of Economic Studies, Oxford University Press, vol. 72(1), pages 223-246.
  12. Manuel S. Santos & Michael Woodford, 1993. "Rational Asset Pricing Bubbles," Working Papers 9304, Centro de Investigacion Economica, ITAM.
  13. Robert E. Lucas Jr. & Nancy L. Stokey, 1984. "Money and Interest in Cash-In-Advance Economy," Discussion Papers 628, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  14. 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.
  15. Magill,Michael & Quinzii,Martine, 1989. "Real effects of money in general equilibrium," Discussion Paper Serie A 232, University of Bonn, Germany.
  16. 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.
  17. Bewley, Truman F., 1972. "Existence of equilibria in economies with infinitely many commodities," Journal of Economic Theory, Elsevier, vol. 4(3), pages 514-540, June.
  18. Max Blouin, 2000. "Overlapping Generations of Cars," Cahiers de recherche CREFE / CREFE Working Papers 117, CREFE, Université du Québec à Montréal.
  19. Sargent, Thomas J & Wallace, Neil, 1975. ""Rational" Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 241-54, April.
  20. Woodford, Michael, 1994. "Monetary Policy and Price Level Determinacy in a Cash-in-Advance Economy," Economic Theory, Springer, vol. 4(3), pages 345-80.
  21. repec:fth:louvco:0044 is not listed on IDEAS
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Cited by:
  1. Andreas Schabert, 2004. "On the relevance of open market operations for the short-run effects of monetary policy," Money Macro and Finance (MMF) Research Group Conference 2003 83, Money Macro and Finance Research Group.
  2. Gaetano Bloise & Jacques Dréze & Herakles Polemarchakis, 2005. "Monetary equilibria over an infinite horizon," Economic Theory, Springer, vol. 25(1), pages 51-74, 01.
  3. Bloise, Gaetano, 2005. "A remark on the fiscal theory of price determination," Journal of Mathematical Economics, Elsevier, vol. 41(8), pages 1037-1052, December.

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