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General equilibrium with nonconvexities and money

  • Rocheteau, Guillaume
  • Rupert, Peter
  • Shell, Karl
  • Wright, Randall

In a general-equilibrium economy with nonconvexities, there are sunspot equilibria with good welfare properties; sunspots can ameliorate the effects of the nonconvexities. For these economies, we show that agents act as if they have quasi-linear utility functions. We use this result to construct a new model of monetary exchange along the lines of Lagos and Wright, where trade occurs in both centralized and decentralized markets, but instead of quasi-linear preferences we assume general preferences but with indivisible labor. This suggests that modern monetary theory is more robust than one might have thought. It also constitutes progress on the classic problem of integrating monetary economics and general-equilibrium theory.

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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 142 (2008)
Issue (Month): 1 (September)
Pages: 294-317

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Handle: RePEc:eee:jetheo:v:142:y:2008:i:1:p:294-317
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

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  8. Richard Rogerson, 2010. "Indivisible Labor, Lotteries and Equilibrium," Levine's Working Paper Archive 250, David K. Levine.
  9. Garratt, Rod & Keister, Todd & Qin, Cheng-Zhong & Shell, Karl, 2002. "Equilibrium Prices When the Sunspot Variable Is Continuous," Journal of Economic Theory, Elsevier, vol. 107(1), pages 11-38, November.
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  12. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-54, August.
  13. Kehoe, Timothy J. & Levine, David K. & Prescott, Edward C., 2002. "Lotteries, Sunspots, and Incentive Constraints," Journal of Economic Theory, Elsevier, vol. 107(1), pages 39-69, November.
  14. Ricardo Lagos & Randall Wright, 2002. "A unified framework for monetary theory and policy analysis," Working Paper 0211, Federal Reserve Bank of Cleveland.
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  16. Karl Shell & Randall Wright, 2010. "Indivisibilities, Lotteries and Sunspot Equilibria," Levine's Working Paper Archive 2061, David K. Levine.
  17. Garratt, Rod & Keister, Todd & Shell, Karl, 2002. "Comparing Sunspot Equilibrium and Lottery Equilibrium Allocations: The Finite Case," Working Papers 02-07, Cornell University, Center for Analytic Economics.
  18. S. Boragan Aruoba & Randall Wright, 2002. "Search, money and capital: a neoclassical dichotomy," Working Paper 0208, Federal Reserve Bank of Cleveland.
  19. Zhu, Tao, 2005. "Existence of a monetary steady state in a matching model: divisible money," Journal of Economic Theory, Elsevier, vol. 123(2), pages 135-160, August.
  20. Shouyong Shi, 1996. "A Divisible Search Model of Fiat Money," Working Papers 930, Queen's University, Department of Economics.
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  22. Joseph M. Ostroy, 1972. "The Informational Efficiency of Monetary Exchange," UCLA Economics Working Papers 021, UCLA Department of Economics.
  23. Shouyong Shi, 1995. "Money and Prices: A Model of Search and Bargaining," Working Papers 916, Queen's University, Department of Economics.
  24. Trejos, Alberto & Wright, Randall, 1995. "Search, Bargaining, Money, and Prices," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 118-41, February.
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  27. Prescott, Edward C. & Shell, Karl, 2002. "Introduction to Sunspots and Lotteries," Journal of Economic Theory, Elsevier, vol. 107(1), pages 1-10, November.
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