Monetary Equilibria in a Baumol-Tobin Economy
AbstractThis paper provides a non-steady state general equilibrium foundation for the transactions demand for money going back to Baumol (1952) and Tobin (1956). In our economy, money competes against real capital as a store of value. We prove existence of a monetary general equilibrium in which both real capital and fiat money are voluntarily held over time. The demand for money is generated by fixed transactions costs. More precisely, we assume that house-holds have two physically separated accounts. On the first account they finance consumption and might want to hold money over time. On the second account households receive their wages, hold claims on capital and earn interest income from renting capital to firms. Every transfer of wealth between the two accounts requires fixed resources. In equilibrium, households space apart the transaction dates in time. Between these transaction dates, money is held as a store of value on the first account for transactions purposes. The number of periods over which money is held is endogenous and the nonconvexity of the problem is explicitly taken into account.
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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 2006_15.
Length: 45 pages
Date of creation: Jun 2006
Date of revision:
Baumol-Tobin; Monetary Theory; General Equilibrium Theory;
Find related papers by JEL classification:
- D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
- E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
- E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-10-21 (All new papers)
- NEP-CBA-2006-10-21 (Central Banking)
- NEP-DGE-2006-10-21 (Dynamic General Equilibrium)
- NEP-MAC-2006-10-21 (Macroeconomics)
- NEP-MON-2006-10-21 (Monetary Economics)
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