Monetary Equilibria in a Cash-in-Advance Economy with Incomplete Financial Markets
AbstractThe general equilibrium model with incomplete financial markets (GEI) is extended by adding fiat money, fiscal and monetary policy and a cash-in-advance constraint. The central bank either pegs the interest rate or money supply while the fiscal authority sets a Ricardian or a non-Ricardian fiscal plan. We prove the existence of equilibria in all four scenarios. In Ricardian economies, the conditions required for existence are not more restrictive than in standard GEI. In non-Ricardian economies, the sufficient conditions for existence are more demanding. In the Ricardian economy, neither the price level nor the equivalent martingale measure are determinate.
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Bibliographic InfoPaper provided by Max Planck Institute for Research on Collective Goods in its series Working Paper Series of the Max Planck Institute for Research on Collective Goods with number 2005_18.
Length: 43 pages
Date of creation: Sep 2005
Date of revision:
Money; Incomplete Markets; Fiscal Policy; Indeterminacy;
Other versions of this item:
- Bai, Jinhui H. & Schwarz, Ingolf, 2006. "Monetary equilibria in a cash-in-advance economy with incomplete financial markets," Journal of Mathematical Economics, Elsevier, vol. 42(4-5), pages 422-451, August.
- Jinhui H. Bai & Ingolf Schwarz, 2005. "Monetary Equilibria in a Cash-in-Advance Economy with Incomplete Financial Markets," JEPS Working Papers 05-005, JEPS.
- Jinhui H. Bai & Ingolf Schwarz, 2006. "Monetary Equilibria in a Cash-in-Advance Economy with Incomplete Financial Markets," Working Papers gueconwpa~06-06-05, Georgetown University, Department of Economics.
- D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-09-29 (All new papers)
- NEP-CBA-2005-10-16 (Central Banking)
- NEP-DGE-2005-09-30 (Dynamic General Equilibrium)
- NEP-FMK-2005-10-15 (Financial Markets)
- NEP-MAC-2005-09-30 (Macroeconomics)
- NEP-MON-2005-10-01 (Monetary Economics)
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