Advanced Search
MyIDEAS: Login

On Imperfect Competition with Occasionally Binding Cash-in-Advance Constraints

Contents:

Author Info

  • Dixon, Huw

    () (Cardiff Business School)

  • Pourpourides, Panayiotis M.

    () (Cardiff Business School)

Abstract

We depart from the assumption of perfect competition in the final goods sector, commonly used in cash-in-advance (CIA) models, providing extensive theoretical analysis of the general equilibrium of an economy with imperfect competition, endogenous production and fully flexible prices in the presence of occasionally binding CIA constraints, under general assumptions about the velocity of money. Homothetic preferences generate Marshallian demands which are linear in own price allowing for any combination of equilibrium number of firms and demand elasticity. Whether the CIA constraint binds or not depends, among others, on the degree of imperfect competition. As the market becomes more competitive it is certainly no less likely that the CIA constraint will bind. The degree of imperfect competition directly affects the distribution of consumption and indirectly the level of output and work effort via the CIA constraint. With perfect foresight, there is an optimal negative steady-state inflation rate. We also consider how the introduction of capital and bonds would fit into the framework.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://patrickminford.net/wp/E2012_3.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Cardiff University, Cardiff Business School, Economics Section in its series Cardiff Economics Working Papers with number E2012/3.

as in new window
Length: 61 pages
Date of creation: Jan 2012
Date of revision:
Handle: RePEc:cdf:wpaper:2012/3

Contact details of provider:
Postal: Aberconway Building, Colum Drive, CARDIFF, CF10 3EU
Phone: +44 (0) 29 20874417
Fax: +44 (0) 29 20874419
Web page: http://business.cardiff.ac.uk/research/academic-sections/economics/working-papers
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Stephanie Schmitt-Grohe & Martin Uribe, 1997. "Price level determinacy and monetary policy under a balanced-budget requirement," Finance and Economics Discussion Series 1997-17, Board of Governors of the Federal Reserve System (U.S.).
  2. Lucas, Robert Jr., 1982. "Interest rates and currency prices in a two-country world," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 335-359.
  3. Lagos, Ricardo & Wright, Randall, 2003. "Dynamics, cycles, and sunspot equilibria in 'genuinely dynamic, fundamentally disaggregative' models of money," Journal of Economic Theory, Elsevier, vol. 109(2), pages 156-171, April.
  4. Chen, Hung-Ju & Li, Ming-Chia, 2008. "Chaotic dynamics in a monetary economy with habit persistence," Journal of Economic Behavior & Organization, Elsevier, vol. 65(2), pages 245-260, February.
  5. Benassy, Jean-Pascal, 1975. "Neo-Keynesian Disequilibrium Theory in a Monetary Economy," Review of Economic Studies, Wiley Blackwell, vol. 42(4), pages 503-23, October.
  6. Jonathan Chiu, 2005. "Endogenously Segmented Asset Market in an Inventory Theoretic Model of Money Demand," 2005 Meeting Papers 108, Society for Economic Dynamics.
  7. Irina A. Telyukova & Ludo Visschers, 2009. "Precautionary Demand for Money in a Monetary Business Cycle Model," EIEF Working Papers Series 0906, Einaudi Institute for Economic and Finance (EIEF), revised Jun 2009.
  8. Peter N. Ireland, 2002. "Implementing the Friedman Rule," NBER Working Papers 8821, National Bureau of Economic Research, Inc.
  9. Javier Díaz-Giménez & Giorgia Giovannetti & Ramon Marimon & Pedro Teles, 2004. "Nominal debt as a burden on monetary policy," Working Paper Series WP-04-10, Federal Reserve Bank of Chicago.
  10. Gaël Giraud & Dimitrios P. Tsomocos, 2010. "Nominal Uniqueness and Money Non-neutrality in the Limit-Price Exchange Process," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00505141, HAL.
  11. Adao, Bernardino & Correia, Maria Isabel Horta & Teles, Pedro, 2001. "Gaps and Triangles," CEPR Discussion Papers 2668, C.E.P.R. Discussion Papers.
  12. 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.
  13. Bernardino Adao & Isabel Correia & Pedro Teles, 2011. "Unique Monetary Equilibria with Interest Rate Rules," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(3), pages 432-442, July.
  14. Michael B. Devereux & Henry E. Siu, 2007. "State Dependent Pricing And Business Cycle Asymmetries," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(1), pages 281-310, 02.
  15. Svensson, Lars E O, 1985. "Money and Asset Prices in a Cash-in-Advance Economy," Journal of Political Economy, University of Chicago Press, vol. 93(5), pages 919-44, October.
  16. Fernando Alvarez & Andrew Atkeson & Chris Edmond, 2003. "On the Sluggish Response of Prices to Money in an Inventory-Theoretic Model of Money Demand," NBER Working Papers 10016, National Bureau of Economic Research, Inc.
  17. Chamley, Christophe & Polemarchakis, Herakles, 1984. "Assets, General Equilibrium and the Neutrality of Money," Review of Economic Studies, Wiley Blackwell, vol. 51(1), pages 129-38, January.
  18. Carl E. Walsh, 2003. "Monetary Theory and Policy, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232316.
  19. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  20. Datta, Bipasa & Dixon, Huw, 2000. "Linear-homothetic preferences," Economics Letters, Elsevier, vol. 69(1), pages 55-61, October.
  21. Thomas F. Cooley & Gary D. Hansen, 1997. "Unanticipated money growth and the business cycle reconsidered," Proceedings, Federal Reserve Bank of Cleveland, issue Nov, pages 624-652.
  22. Gaetano Bloise & Herakles Polemarchakis, 2006. "Theory and practice of monetary policy," Economic Theory, Springer, vol. 27(1), pages 1-23, 01.
  23. Cooley, Thomas F. & Hansen, Gary D., 1997. "Unanticipated Money," Economics Series 42, Institute for Advanced Studies.
  24. Datta, Bipasa & Dixon, Huw, 2001. "Omega-Homothetic Preferences: Theory and Applications," Scottish Journal of Political Economy, Scottish Economic Society, vol. 48(2), pages 148-63, May.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:cdf:wpaper:2012/3

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bruce Webb).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.