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Specialization, Transactions Technologies, and Money Growth

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Author Info
Harold L. Cole
Alan C. Stockman

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Abstract

With some models of money and a representative-agent there is no reason for monetary trade because identical individuals can consume their own production. Lucas proposed a parable involving differentiated products in a cash-in-advance model to avoid this problem. This paper studies Lucas?s suggestion by developing a differentiated product model with money, a cash-in-advance constraint for market purchases, and endogenous specialization. Individuals who are identical ex ante choose to differ ex post in equilibrium. Monetary exchange involves differentiated goods at a point in time, so a nonzero balance of trade is not a prerequisite for a monetary equilibrium. In contrast to results in some other models, we find that consumption of goods that are not purchased with money (analogous to leisure services or credit goods) can either rise or fall with a rise in the money growth rate. Finally, we allow for costly barter and examine individuals' choices of the method of payment. We discuss the implied nominal-interest elasticities of the (real) demand for money in the general equilibrium.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2724.

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Date of creation: Sep 1988
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Handle: RePEc:nbr:nberwo:2724

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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. Stockman, Alan C., 1981. "Anticipated inflation and the capital stock in a cash in-advance economy," Journal of Monetary Economics, Elsevier, vol. 8(3), pages 387-393. [Downloadable!] (restricted)
  2. Aschauer, David & Greenwood, Jeremy, 1983. "A Further Exploration in the Theory of Exchange Rate Regimes," Journal of Political Economy, University of Chicago Press, vol. 91(5), pages 868-75, October. [Downloadable!] (restricted)
  3. Lucas, Robert Jr. & Stokey, Nancy L., 1983. "Optimal fiscal and monetary policy in an economy without capital," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 55-93. [Downloadable!] (restricted)
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  4. Svensson, Lars E O, 1985. "Money and Asset Prices in a Cash-in-Advance Economy," Journal of Political Economy, University of Chicago Press, vol. 93(5), pages 919-44, October. [Downloadable!] (restricted)
  5. King, Robert G. & Plosser, Charles I., 1986. "Money as the mechanism of exchange," Journal of Monetary Economics, Elsevier, vol. 17(1), pages 93-115, January. [Downloadable!] (restricted)
  6. Abel, Andrew B., 1985. "Dynamic behavior of capital accumulation in a cash-in-advance model," Journal of Monetary Economics, Elsevier, vol. 16(1), pages 55-71, July. [Downloadable!] (restricted)
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  7. Lucas, Robert E, Jr, 1980. "Equilibrium in a Pure Currency Economy," Economic Inquiry, Oxford University Press, vol. 18(2), pages 203-20, April.
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  1. William B. English, 1996. "Inflation and financial sector size," Finance and Economics Discussion Series 96-16, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  2. Andrés Erosa & Gustavo Ventura, 2000. "On Inflation as a Regressive Consumption Tax," UWO Department of Economics Working Papers 20001, University of Western Ontario, Department of Economics. [Downloadable!]
    Other versions:
  3. Stefania Albanesi, . "Inflation and Inequality," Working Papers 199, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
    Other versions:
  4. Stefania Albanesi, 2002. "Inflation and Inequality," Macroeconomics 0201002, EconWPA. [Downloadable!]
  5. Harold L. Cole & Lee E. Ohanian, 1997. "Shrinking money and monetary business cycles," Working Papers 579, Federal Reserve Bank of Minneapolis. [Downloadable!]
  6. Harold L. Cole & Narayana R. Kocherlakota, 1998. "Zero nominal interest rates: why they're good and how to get them," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 2-10. [Downloadable!]
  7. Barelli, Paulo & Pessoa, Samuel de Abreu, 2003. "A note on Cole and Stockman," Economics Working Papers (Ensaios Economicos da EPGE) 479, Graduate School of Economics, Getulio Vargas Foundation (Brazil). [Downloadable!]
  8. Mariano Tommasi, 1996. "High inflation: resource misallocations and growth effects," Estudios de Economia, University of Chile, Department of Economics, vol. 23(2 Year 19), pages 157-177, December. [Downloadable!]
    Other versions:
  9. Stefania Albanesi & V. V. Chari & Lawrence J. Christiano, 2002. "Expectation Traps and Monetary Policy," Macroeconomics 0201004, EconWPA. [Downloadable!]
    Other versions:
  10. Michael Dotsey & Peter Ireland, 1994. "The welfare cost of inflation in general equilibrium," Working Paper 94-04, Federal Reserve Bank of Richmond. [Downloadable!]
    Other versions:
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