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A Monetary Union Model with Cash-in-Advance Constraints

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  • Cengiz, Gulfer
  • Cicek, Deniz
  • Kuzubas, Tolga Umut
  • Olcay, Nadide Banu
  • Saglam, Ismail

Abstract

We characterize the monetary competitive equilibrium in a two-country monetary union model involving cash-in-advance constraints both in the factor markets and in the good markets. Simulations show that common money inflation in the union have asymmetric effects on the welfare of workers in the two countries which are technologically differentiated. We also find that the distribution of the money stock within the union may affect labor flow across the countries.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 4248.

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Date of creation: Jul 2007
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Handle: RePEc:pra:mprapa:4248

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Keywords: Monetary union; cash-in-advance; monetary policy;

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  1. Stockman, Alan C, 1980. "A Theory of Exchange Rate Determination," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 88(4), pages 673-98, August.
  2. Erdem Başçí & Ismail Saglam, 2005. "Optimal money growth in a limited participation model with heterogeneous agents," Review of Economic Design, Springer, Springer, vol. 9(2), pages 91-108, 04.
  3. Fuerst, Timothy S., 1992. "Liquidity, loanable funds, and real activity," Journal of Monetary Economics, Elsevier, Elsevier, vol. 29(1), pages 3-24, February.
  4. Rotemberg, Julio J, 1984. "A Monetary Equilibrium Model with Transactions Costs," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 92(1), pages 40-58, February.
  5. Grossman, Sanford & Weiss, Laurence, 1983. "A Transactions-Based Model of the Monetary Transmission Mechanism," American Economic Review, American Economic Association, American Economic Association, vol. 73(5), pages 871-80, December.
  6. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1996. "Sticky price and limited participation models of money: a comparison," Working Paper Series, Macroeconomic Issues, Federal Reserve Bank of Chicago WP-96-28, Federal Reserve Bank of Chicago.
  7. Erdem Basci & Ismail Saglam, 1998. "On the Importance of Sequencing of Markets in Monetary Economies," Departmental Working Papers, Bilkent University, Department of Economics 982, Bilkent University, Department of Economics.
  8. David M. Arseneau, 2004. "Optimal Inflation in an Open Economy," Econometric Society 2004 North American Summer Meetings, Econometric Society 279, Econometric Society.
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