AbstractThe introduction of banks that issue money and supply balances and pay out their profis as dividends is the natural modification of the model of general competitive equilibrium that encompasses monetary economies with an operative transactions technology. Monetary policy sets nominal rates of interest and accommodates the demand for balances; alternatively, it sets the supply of balances and rates of interest adjust for money markets to clear. Competitive equilibria exist. Under uncertainty, monetary policy fails to determine the distribution of the rate of inflation or the allocation of resources at equilibrium. If, in addition to rates of interest, monetary policy sets the prices of contingent loans subject to no-arbitrage constraints, or targets the distribution of the terminal level of prices, it lifts the multiplicity.
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Bibliographic InfoPaper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2000044.
Date of creation: 00 Sep 2000
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money; equilibrium; monetary policy.;
Other versions of this item:
- D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
- E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
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- Ostroy, Joseph M & Starr, Ross M, 1974.
"Money and the Decentralization of Exchange,"
Econometric Society, vol. 42(6), pages 1093-1113, November.
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- Joseph M. Ostroy & Ross M. Starr, 1973. "Money and the Decentralization of Exchange," UCLA Economics Working Papers 041, UCLA Department of Economics.
- Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-54, August.
- Gaetano Bloise & J. H. Dreze & H. M. Polemarchakis, 2003.
"Monetary Equilibria over an Infinite Horizon,"
03-19, University of Copenhagen. Department of Economics.
- 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.
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