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Fiat money and the value of binding portfolio constraints

  • Mário Páscoa

    ()

  • Myrian Petrassi

    ()

  • Juan Torres-Martínez

    ()

It is well known that, under uniform impatience, positive net supply assets are free of bubbles for non-arbitrage kernel deflators that yield finite present values of wealth. However, this does not mean that prices cannot be above the series of deflated dividends for the deflators given by the agents' marginal rates of substitution, which also yield finite present values of wealth. In particular, binding no-short-sales constraints lead to positive prices of fiat money. These monetary equilibria are Pareto improvements but they are still inefficient.

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File URL: http://hdl.handle.net/10.1007/s00199-009-0510-9
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Article provided by Springer in its journal Economic Theory.

Volume (Year): 46 (2011)
Issue (Month): 2 (February)
Pages: 189-209

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Handle: RePEc:spr:joecth:v:46:y:2011:i:2:p:189-209
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  1. Grandmont, Jean-Michel & Younes, Yves, 1972. "On the Role of Money and the Existence of a Monetary Equilibrium," Review of Economic Studies, Wiley Blackwell, vol. 39(3), pages 355-72, July.
  2. Páscoa, Mario Rui & Araújo, Aloísio Pessoa de & Barbachan, José Fajardo, 2003. "Endogenous Collateral," Economics Working Papers (Ensaios Economicos da EPGE) 511, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
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  4. Mário Páscoa & Myrian Petrassi & Juan Pablo Torres-Martínez, 2008. "Fiat money and the value of binding portfolio constraints," Working Papers wp283, University of Chile, Department of Economics.
  5. Laibson, David, 1998. "Life-cycle consumption and hyperbolic discount functions," European Economic Review, Elsevier, vol. 42(3-5), pages 861-871, May.
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  8. 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.
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