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Monetary equilibria over an infinite horizon

Author

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  • Gaetano Bloise

    ()

  • Jacques Dréze

    ()

  • Herakles Polemarchakis

    ()

Abstract

Money provides liquidity services through a cash-in-advance constraint. The exchange of commodities and assets extends over an infinite horizon under uncertainty and a sequentially complete asset market. Monetary policy sets the path of rates of interest and accommodates the demand for balances through open market operations or loans. A public authority, which, most pertinently, inherits a strictly positive public debt, raises revenue from taxes and seignorage, and it distributes possible budget surpluses to individuals through transfers. Competitive equilibria exist, under mild solvency conditions. But, for a fixed path of rates of interest, there is a non-trivial multiplicity of equilibrium paths of prices of commodities. Determinacy requires that, subject to no-arbitrage and in addition to rates of interest, the prices of state-contingent revenues be somehow determined. Copyright Springer-Verlag Berlin/Heidelberg 2005

Suggested Citation

  • Gaetano Bloise & Jacques Dréze & Herakles Polemarchakis, 2005. "Monetary equilibria over an infinite horizon," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 25(1), pages 51-74, January.
  • Handle: RePEc:spr:joecth:v:25:y:2005:i:1:p:51-74
    DOI: 10.1007/s00199-004-0472-x
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    References listed on IDEAS

    as
    1. 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 467-467.
    2. Magill, M. & Quinzii, M., 1992. "Real effects of money in general equilibrium," Journal of Mathematical Economics, Elsevier, vol. 21(4), pages 301-342.
    3. Magill, Michael & Quinzii, Martine, 1994. "Infinite Horizon Incomplete Markets," Econometrica, Econometric Society, vol. 62(4), pages 853-880, July.
    4. BLOISE, Gaetano & DRÈZE, Jacques & POLEMARCHAKIS, Heracles, 2002. "Money and indeterminacy over an infinite horizon," CORE Discussion Papers 2002021, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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    Citations

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    Cited by:

    1. Bloise, Gaetano, 2006. "Money, gains to trade and impatience," Research in Economics, Elsevier, vol. 60(1), pages 22-34, March.
    2. Gaël Giraud & Nguenamadji Orntangar, 2011. "Monetary policy under finite speed of trades and myopia," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00609824, HAL.
    3. Adão, Bernardino & Correia, Isabel & Teles, Pedro, 2014. "Short and long interest rate targets," Journal of Monetary Economics, Elsevier, vol. 66(C), pages 95-107.
    4. Raphaël Espinoza & Charles. Goodhart & Dimitrios Tsomocos, 2009. "State prices, liquidity, and default," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 39(2), pages 177-194, May.
    5. Bloise, Gaetano & Polemarchakis, Herakles, 2015. "An argument for positive nominal interest," CRETA Online Discussion Paper Series 14, Centre for Research in Economic Theory and its Applications CRETA.
    6. Elena Mercato & Antonio Villanacci, 2006. "Taxes and money in incomplete financial markets," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 29(1), pages 23-54, May.
    7. Li Lin & Dimitrios P. Tsomocos & Alexandros P. Vardoulakis, 2016. "On default and uniqueness of monetary equilibria," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 62(1), pages 245-264, June.
    8. Bai, Jinhui H. & Schwarz, Ingolf, 2006. "Monetary equilibria in a cash-in-advance economy with incomplete financial markets," Journal of Mathematical Economics, Elsevier, vol. 42(4-5), pages 422-451, August.
    9. Peiris, M.Udara & Polemarchakis, Herakles, 2015. "Quantitative Easing in an Open Economy : Prices, Exchange Rates and Risk Premia," CRETA Online Discussion Paper Series 09, Centre for Research in Economic Theory and its Applications CRETA.
    10. Ngoc-Sang Pham, 2013. "Collateral monetary equilibrium with liquidity constraints in an infinite horizon economy," Documents de travail du Centre d'Economie de la Sorbonne 13055r, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne, revised Sep 2013.
    11. McMahon, Michael & Peiris, Udara & Polemarchakis, Herakles, 2015. "Perils of quantitative easing," The Warwick Economics Research Paper Series (TWERPS) 1089, University of Warwick, Department of Economics.
    12. Tomoyuki Nakajima & Herakles Polemarchakis, 2002. "Monetary Equilibria with Monopolistic Competition and Sticky Prices," Working Papers 2002-25, Brown University, Department of Economics.
    13. BLOISE, Gaetano & DRÈZE, Jacques & POLEMARCHAKIS, Heracles, 2002. "Money and indeterminacy over an infinite horizon," CORE Discussion Papers 2002021, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    14. Heracles M. Polemarchakis & Jacques H. Drèze, 1995. "Monetary Equilibria," Working Papers hal-00607521, HAL.
    15. Bernardino Adão & Isabel Horta Correia & Pedro Teles, 2004. "Monetary Policy with State Contingent Interest Rates," Working Papers w200418, Banco de Portugal, Economics and Research Department.
    16. Steven M. Shugan, 2005. "Comments on Competitive Responsiveness," Marketing Science, INFORMS, vol. 24(1), pages 3-7.
    17. Bernardino Adão & Isabel Correia & Pedro Teles, 2004. "Monetary policy with single instrument feedback rules," Working Paper Series WP-04-30, Federal Reserve Bank of Chicago.
    18. Kannai, Yakar & Rosenmüller, Joachim, 2010. "Strategic behavior in financial markets," Journal of Mathematical Economics, Elsevier, vol. 46(2), pages 148-162, March.
    19. repec:hal:journl:halshs-00848057 is not listed on IDEAS
    20. Michael Magill & Martine Quinzii, 2014. "Term structure and forward guidance as instruments of monetary policy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 56(1), pages 1-32, May.
    21. Herakles Polemarchakis, 2015. "Markets and Efficiency," The Japanese Economic Review, Japanese Economic Association, vol. 66(2), pages 150-166, June.
    22. Magill, Michael & Quinzii, Martine, 2014. "Anchoring expectations of inflation," Journal of Mathematical Economics, Elsevier, vol. 50(C), pages 86-105.
    23. DRÈZE, Jacques, 2001. "Indeterminateness of equilibria and macroeconomics," CORE Discussion Papers 2001058, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    24. Marko Backovic & Zoran Popovic, 2012. "The Analysis Of Model Of General Economic Equilibrium And Financial Instability Of Economic System," Montenegrin Journal of Economics, Economic Laboratory for Transition Research (ELIT), vol. 8(1), pages 63-85.
    25. Leo Ferraris, 2002. "Inside versus outside money: indeterminacy in GEI models," Working Papers 62, University of Rome La Sapienza, Department of Public Economics.

    More about this item

    Keywords

    Money; Equilibrium; Indeterminacy; Monetary policy; Fiscal policy.;

    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • 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

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