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Inside versus outside money: indeterminacy in GEI models

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  • Leo Ferraris

Abstract

In this paper I consider the issue of indeterminacy of equilibrium in a general equilibrium model with incomplete markets and nominal assets. First, I present some classic results on nominal and real indeterminacy in those models. I then proceed to analyse a more recent literature that focused on the role of money in eliminating indeterminacy of the price level. I show that determinacy depends crucially on the presence of outside money in the economy. I also point out some of the limitations of this literature and some possible way out. In the last part I present a paper that deals with indeterminacy in an altogether different way, namely introducing non-competitive intermediaries that design assets and price them.

Suggested Citation

  • Leo Ferraris, 2002. "Inside versus outside money: indeterminacy in GEI models," Working Papers in Public Economics 62, University of Rome La Sapienza, Department of Economics and Law.
    • Handle: RePEc:sap:wpaper:wp62
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    References listed on IDEAS

    as
    1. Pradeep Dubey & John Geanakoplos, 2000. "Inside and Outside Money, Gains to Trade, and IS-LM," Cowles Foundation Discussion Papers 1257, Cowles Foundation for Research in Economics, Yale University.
    2. Balasko, Yves & Cass, David, 1989. "The Structure of Financial Equilibrium with Exogenous Yields: The Case of Incomplete Markets," Econometrica, Econometric Society, vol. 57(1), pages 135-162, January.
    3. Magill, M. & Quinzii, M., 1992. "Real effects of money in general equilibrium," Journal of Mathematical Economics, Elsevier, vol. 21(4), pages 301-342.
    4. Gaetano Bloise & Jacques H. Drèze & Herakles M. Polemarchakis, 2006. "Monetary Equilibria over an Infinite Horizon," Studies in Economic Theory, in: Christian Schultz & Karl Vind (ed.), Institutions, Equilibria and Efficiency, chapter 5, pages 69-93, Springer.
    5. Geanakoplos, John, 1990. "An introduction to general equilibrium with incomplete asset markets," Journal of Mathematical Economics, Elsevier, vol. 19(1-2), pages 1-38.
    6. Radner, Roy, 1972. "Existence of Equilibrium of Plans, Prices, and Price Expectations in a Sequence of Markets," Econometrica, Econometric Society, vol. 40(2), pages 289-303, March.
    7. Simon, Leo K & Zame, William R, 1990. "Discontinuous Games and Endogenous Sharing Rules," Econometrica, Econometric Society, vol. 58(4), pages 861-872, July.
    8. Debreu, Gerard, 1970. "Economies with a Finite Set of Equilibria," Econometrica, Econometric Society, vol. 38(3), pages 387-392, May.
    9. Allen, B., 1985. "Continuous random selections from the equilibrium correspondence," LIDAM Discussion Papers CORE 1985020, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    10. Hellwig, Martin F., 1993. "The challenge of monetary theory," European Economic Review, Elsevier, vol. 37(2-3), pages 215-242, April.
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    More about this item

    Keywords

    GEI; indeterminacy; money.;
    All these keywords.

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets

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