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Monetary Equilibrium with Missing Markets

We consider a two-period model with missing assets and missing market links, in which money plays a central role and is linked to every instrument in the economy. If there are enough missing market links relative to the ratio of outside to inside money, then monetary equilibrium (ME) exists and money has positive value. The nonexistence of GEI (of the underlying economy) shows up as a liquidity trap in terms of the ME. In sharp contrast to GEI, the ME are generally determinate not only in terms of real, but also financial, variables.

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File URL: http://cowles.econ.yale.edu/P/cd/d13b/d1389.pdf
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Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1389.

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Length: 37 pages
Date of creation: Jan 2003
Date of revision:
Publication status: Published in Journal of Mathematical Economics (2003), 39(5-6): 585-618
Handle: RePEc:cwl:cwldpp:1389
Note: CFP 1063.
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Web page: http://cowles.econ.yale.edu/

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  1. Hool, Bryce, 1976. "Money, Expectations and the Existence of a Temporary Equilibrium," Review of Economic Studies, Wiley Blackwell, vol. 43(3), pages 439-45, October.
  2. Levine, David K, 1989. "Efficiency and the Value of Money," Review of Economic Studies, Wiley Blackwell, vol. 56(1), pages 77-88, January.
  3. Joseph M. Ostroy & Ross M. Starr, 1973. "Money and the Decentralization of Exchange," Cowles Foundation Discussion Papers 349, Cowles Foundation for Research in Economics, Yale University.
  4. Grandmont, Jean-Michel & Laroque, Guy, 1976. "The Liquidity Trap," Econometrica, Econometric Society, vol. 44(1), pages 129-35, January.
  5. Magill, M. & Quinzii, M., 1992. "Real effects of money in general equilibrium," Journal of Mathematical Economics, Elsevier, vol. 21(4), pages 301-342.
  6. Amir, Rabah & Sahi, Siddharta & Shubik, Martin & Yao, Shuntian, 1990. "A strategic market game with complete markets," Journal of Economic Theory, Elsevier, vol. 51(1), pages 126-143, June.
  7. Shapley, Lloyd S & Shubik, Martin, 1977. "Trade Using One Commodity as a Means of Payment," Journal of Political Economy, University of Chicago Press, vol. 85(5), pages 937-68, October.
  8. Pradeep Dubey & John Geanakoplos, 2003. "Inside and outside fiat money, gains to trade, and IS-LM," Economic Theory, Springer, vol. 21(2), pages 347-397, 03.
  9. 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.
  10. Hayashi, Toshihiko, 1974. "The non-pareto efficiency of initial allocation of commodities and monetary equilibrium: An inside money economy," Journal of Economic Theory, Elsevier, vol. 7(2), pages 173-187, February.
  11. Timothy J. Kehoe & David K. Levine & Michael Woodford, 1990. "The optimum quantity of money revisited," Working Papers 404, Federal Reserve Bank of Minneapolis.
  12. John Geanakoplos & Andreu Mas-Colell, 1985. "Real Indeterminacy with Financial Assets," Cowles Foundation Discussion Papers 770R, Cowles Foundation for Research in Economics, Yale University, revised Oct 1985.
  13. Woodford, Michael, 1990. "The optimum quantity of money," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 2, chapter 20, pages 1067-1152 Elsevier.
  14. 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.
  15. Truman F. Bewley, 1984. "Fiscal and Monetary Policy in a General Equilibrium Model," Cowles Foundation Discussion Papers 690, Cowles Foundation for Research in Economics, Yale University.
  16. Grandmont, Jean-Michel & Laroque, Guy, 1975. "On Money and Banking," Review of Economic Studies, Wiley Blackwell, vol. 42(2), pages 207-36, April.
  17. Pradeep Dubey & John Geanakoplos & Martin Shubik, 2000. "Default in a General Equilibrium Model with Incomplete Markets," Cowles Foundation Discussion Papers 1247, Cowles Foundation for Research in Economics, Yale University.
  18. Lucas, Robert E, Jr, 1980. "Equilibrium in a Pure Currency Economy," Economic Inquiry, Western Economic Association International, vol. 18(2), pages 203-20, April.
  19. Balasko, Yves & Cass, David & Siconolfi, Paolo, 1990. "The structure of financial equilibrium with exogenous yields : The case of restricted participation," Journal of Mathematical Economics, Elsevier, vol. 19(1-2), pages 195-216.
  20. 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.
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