Monetary Policy with Incomplete Markets
AbstractWe consider an extension of a general equilibrium model with incomplete markets that considers cash-in-advance constraints. The total amount of money is supplied by an authority, which produces at no cost and lends money to agents at short term nominal rates of interest, meeting the demand. Agents have initial nominal claims, which in the aggregate, are the counterpart of an initial public debt. The authority covers its expenditures, including initial debt, through public revenues which consists of taxes and seignorage, and distributes its eventual budget surpluses through transfers to individuals, while no further instruments are available to correct eventual budget deficits. We define a concept of equilibrium in this extended model, and prove that there exists a monetary equilibrium with no transfers. Moreover, we show that if the price level is high enough, a monetary equilibrium with positive transfers exists.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by EconWPA in its series Finance with number 0503026.
Length: 23 pages
Date of creation: 29 Mar 2005
Date of revision:
Note: Type of Document - pdf; pages: 23
Contact details of provider:
Web page: http://18.104.22.168
Cash-in-advance constraints; incomplete markets; nominal assets; monetary equilibrium; money; nominal interest rate; transfers; price levels;
Find related papers by JEL classification:
- C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
- D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
- E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-04-16 (All new papers)
- NEP-CBA-2005-04-16 (Central Banking)
- NEP-FIN-2005-04-16 (Finance)
- NEP-MAC-2005-04-16 (Macroeconomics)
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.:
- Magill, M. & Quinzii, M., 1988.
"Real Effects Of Money In General Equilibrium,"
8826, Southern California - Department of Economics.
- Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
- Lucas, Robert Jr., 1990. "Liquidity and interest rates," Journal of Economic Theory, Elsevier, vol. 50(2), pages 237-264, April.
- repec:fth:louvco:0044 is not listed on IDEAS
- Grandmont, Jean-Michel & Younes, Yves, 1973.
"On the Efficiency of a Monetary Equilibrium,"
Review of Economic Studies,
Wiley Blackwell, vol. 40(2), pages 149-65, April.
- Monique Florenzano, 2008.
Documents de travail du Centre d'Economie de la Sorbonne
b08005, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
- Werner, Jan, 1985. "Equilibrium in economies with incomplete financial markets," Journal of Economic Theory, Elsevier, vol. 36(1), pages 110-119, June.
- DREZE, Jacques & POLEMARCHAKIS, Heracles, 1995.
CORE Discussion Papers
1995078, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Lucas, Robert E, Jr & Stokey, Nancy L, 1987.
"Money and Interest in a Cash-in-Advance Economy,"
Econometric Society, vol. 55(3), pages 491-513, May.
- Robert E. Lucas Jr. & Nancy L. Stokey, 1984. "Money and Interest in Cash-In-Advance Economy," Discussion Papers 628, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Robert E. Lucas, Jr. & Nancy L. Stokey, 1985. "Money and Interest in a Cash-in-Advance Economy," NBER Working Papers 1618, National Bureau of Economic Research, Inc.
- Woodford, Michael, 1994. "Monetary Policy and Price Level Determinacy in a Cash-in-Advance Economy," Economic Theory, Springer, vol. 4(3), pages 345-80.
- Duffie, Darrell, 1987. "Stochastic equilibria with incomplete financial markets," Journal of Economic Theory, Elsevier, vol. 41(2), pages 405-416, April.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).
If references are entirely missing, you can add them using this form.