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Equilibrium of incomplete markets with money and intermediate banking system

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Abstract

This paper studies a simple stochastic two-period general equilibrium model with money, an incomplete market of nominal assets, and a competitive banking system, intermediate between consumers and a Central Bank. There is a finite number of agents, consumers and banks. Default is not permitted. The public policy instruments are, besides real taxes implicit in the model, public debt and creation of money, both implemented at the first period. The equilibrium existence is established under a "Gains to trade" hypothesis and the assumption that banks have a nonzero endowment of money at each date-event of the model

Suggested Citation

  • Monique Florenzano & Stella Kanellopoulou & Yannis Vailakis, 2006. "Equilibrium of incomplete markets with money and intermediate banking system," Cahiers de la Maison des Sciences Economiques b06068, Université Panthéon-Sorbonne (Paris 1).
    • Handle: RePEc:mse:wpsorb:b06068
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    File URL: https://halshs.archives-ouvertes.fr/halshs-00112209
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    References listed on IDEAS

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    1. Woodford, Michael, 1994. "Monetary Policy and Price Level Determinacy in a Cash-in-Advance Economy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 4(3), pages 345-380.
    2. Dimitrios P. Tsomocos, 2012. "Equilibrium Analysis, Banking and Financial Instability," Chapters, in: The Challenge of Financial Stability, chapter 4, pages 61-97, Edward Elgar Publishing.
    3. Monique Florenzano, 1999. "General equilibrium of financial markets," Post-Print halshs-00085543, HAL.
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    6. Pascal Gourdel & Leila Triki, 2005. "Incomplete markets and monetary policy," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00193970, HAL.
    7. 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.
    8. Gale, D. & Mas-Colell, A., 1975. "An equilibrium existence theorem for a general model without ordered preferences," Journal of Mathematical Economics, Elsevier, vol. 2(1), pages 9-15, March.
    9. Axel Leijonhufvud (ed.), 2001. "Monetary Theory as a Basis for Monetary Policy," International Economic Association Series, Palgrave Macmillan, number 978-1-4039-3961-6, December.
    10. Dubey, Pradeep & Geanakoplos, John, 2003. "Monetary equilibrium with missing markets," Journal of Mathematical Economics, Elsevier, vol. 39(5-6), pages 585-618, July.
    11. Gale, D. & Mas-Colell, A., 1979. "Corrections to an equilibrium existence theorem for a general model without ordered preferences," Journal of Mathematical Economics, Elsevier, vol. 6(3), pages 297-298, December.
    12. Jacques H. Drèze & Heracles M. Polemarchakis, 2001. "Intertemporal General Equilibrium and Monetary Theory," International Economic Association Series, in: Axel Leijonhufvud (ed.), Monetary Theory as a Basis for Monetary Policy, chapter 2, pages 33-71, Palgrave Macmillan.
    13. Willem H. Buiter, 2005. "New Developments in Monetary Economics: Two ghosts, Two Eccentricities, a Fallacy, a Mirage and a Mythos," Economic Journal, Royal Economic Society, vol. 115(502), pages 1-31, March.
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    Cited by:

    1. Andreev, M. & Pil'nik, N. & Pospelov, I., 2009. "Rational Expectation Model of Modern Russian Banking System and the Strong Turnpike Property," Journal of the New Economic Association, New Economic Association, issue 3-4, pages 72-96.

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    More about this item

    Keywords

    Competitive banking system; incomplete markets; nominal assets; money; monetary equilibrium; cash-in-advance constraints; public debt;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D20 - Microeconomics - - Production and Organizations - - - General
    • D46 - Microeconomics - - Market Structure, Pricing, and Design - - - Value Theory
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies

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