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Monetary Equilibria over an Infinite Horizon

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Author Info
Gaetano Bloise (University of Sassari)
J. H. Dreze (CORE)
H. M. Polemarchakis (Brown University)

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Abstract

Money provides liquidity services through a cash-in-advance constraint. The exchange of commodities and assets extends over an infinite horizon under uncertainty and a sequentially complete asset market. Monetary policy sets the path of rates of interest and accommodates the demand for balances. A public authority, inheriting a strictly positive public debt, raises revenue from taxes and seignorage. Competitive equilibria exist, under mild solvency conditions. But, for a fixed path of rates of interest, there is a nontrivial multiplicity of equilibrium paths of prices of commodities. Determinacy requires that, subject to no-arbitrage and in addition to rates of interest, the prices of state-contingent revenues be somehow determined.

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Publisher Info
Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 03-19.

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Length: 24 pages
Date of creation: Apr 2003
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Handle: RePEc:kud:kuiedp:0319

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Related research
Keywords: money equilibrium indeterminacy monetary policy fiscal policy

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Find related papers by JEL classification:
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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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.:
  1. Grandmont, Jean-Michel & Younes, Yves, 1972. "On the Role of Money and the Existence of a Monetary Equilibrium," Review of Economic Studies, Blackwell Publishing, vol. 39(3), pages 355-72, July. [Downloadable!] (restricted)
  2. Woodford, Michael, 1994. "Monetary Policy and Price Level Determinacy in a Cash-in-Advance Economy," Economic Theory, Springer, vol. 4(3), pages 345-80.
  3. Magill, M. & Quinzii, M., 1992. "Real effects of money in general equilibrium," Journal of Mathematical Economics, Elsevier, vol. 21(4), pages 301-342. [Downloadable!] (restricted)
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  4. Dreze, J.H. & Polemarchakis, H.M., 2000. "Monetary Equilibria," Papers 0044, Catholique de Louvain - Center for Operations Research and Economics.
  5. Lucas, Robert E, Jr & Stokey, Nancy L, 1987. "Money and Interest in a Cash-in-Advance Economy," Econometrica, Econometric Society, vol. 55(3), pages 491-513, May. [Downloadable!] (restricted)
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  6. G. Bloise & J.H. Dreze & H.M. Polemarchakis, 2002. "Money and Indeterminacy Over an Infinite Horizon," Working Papers 2002-12, Brown University, Department of Economics. [Downloadable!]
  7. Foley, Duncan K., 1970. "Economic equilibrium with costly marketing," Journal of Economic Theory, Elsevier, vol. 2(3), pages 276-291, September. [Downloadable!] (restricted)
  8. 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. [Downloadable!] (restricted)
  9. Magill, Michael & Quinzii, Martine, 1994. "Infinite Horizon Incomplete Markets," Econometrica, Econometric Society, vol. 62(4), pages 853-80, July. [Downloadable!] (restricted)
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  10. John H. Cochrane, 1998. "Long-term Debt and Optimal Policy in the Fiscal Theory of the Price Level," CRSP working papers 478, Center for Research in Security Prices, Graduate School of Business, University of Chicago. [Downloadable!]
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  11. Grandmont, Jean-Michel & Younes, Yves, 1973. "On the Efficiency of a Monetary Equilibrium," Review of Economic Studies, Blackwell Publishing, vol. 40(2), pages 149-65, April. [Downloadable!] (restricted)
  12. 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. [Downloadable!] (restricted)
  13. Manuel S. Santos & Michael Woodford, 1997. "Rational Asset Pricing Bubbles," Econometrica, Econometric Society, vol. 65(1), pages 19-58, January.
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Full references

Cited by:
(explanations, 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.)

  1. Jinhui H. Bai & Ingolf Schwarz, 2005. "Monetary Equilibria in a Cash-in-Advance Economy with Incomplete Financial Markets," JEPS Working Papers 05-005, JEPS. [Downloadable!]
    Other versions:
  2. G. Bloise & J.H. Dreze & H.M. Polemarchakis, 2002. "Money and Indeterminacy Over an Infinite Horizon," Working Papers 2002-12, Brown University, Department of Economics. [Downloadable!]
  3. Adao, Bernardino & Correia, Maria Isabel Horta & Teles, Pedro, 2005. "Monetary Policy with Single Instrument Feedback Rules," CEPR Discussion Papers 4948, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  4. Bernardino Adão & Isabel Correia & Pedro Teles, 2004. "Monetary policy with state contingent interest rates," Working Paper Series WP-04-26, Federal Reserve Bank of Chicago. [Downloadable!]
    Other versions:
  5. Elena Mercato & Antonio Villanacci, 2006. "Taxes and money in incomplete financial markets," Decisions in Economics and Finance, Springer, vol. 29(1), pages 23-54, 05. [Downloadable!] (restricted)
  6. Tomoyuki Nakajima & Herakles Polemarchakis, 2002. "Monetary Equilibria with Monopolistic Competition and Sticky Prices," Working Papers 2002-25, Brown University, Department of Economics. [Downloadable!]
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