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Monetary Equilibria in a Cash-in-Advance Economy with Incomplete Financial Markets

  • Jinhui H. Bai

    ()

    (Department of Economics, Yale University)

  • Ingolf Schwarz

    (Max Planck Institute for Research on Collective Goods)

The general equilibrium model with incomplete financial markets (GEI) is extended by adding fiat money, fiscal and monetary policy and a cash-in-advance constraint. The central bank either pegs the interest rate or money supply while the fiscal authority sets a Ricardian or a non-Ricardian fiscal plan. We prove the existence of equilibria in all four scenarios. In Ricardian economies, the conditions required for existence are not more restrictive than in standard GEI. In non-Ricardian economies, the sufficient conditions for existence are more demanding. In the Ricardian economy, neither the price level nor the equivalent martingale measure are determinate.

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Paper provided by JEPS in its series JEPS Working Papers with number 05-005.

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Length: 41 pages
Date of creation: Sep 2005
Date of revision:
Handle: RePEc:jep:wpaper:05005
Contact details of provider: Web page: http://jeps.repec.org/

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  1. Svensson, Lars E O, 1985. "Money and Asset Prices in a Cash-in-Advance Economy," Journal of Political Economy, University of Chicago Press, vol. 93(5), pages 919-44, October.
  2. DREZE, Jacques & POLEMARCHAKIS, Heracles, 1995. "Monetary equilibria," CORE Discussion Papers 1995078, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Pradeep Dubey & John Geanakoplos, 2003. "Monetary Equilibrium with Missing Markets," Cowles Foundation Discussion Papers 1389, Cowles Foundation for Research in Economics, Yale University.
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  5. BLOISE, Gaetano & DREZE, Jacques H. & POLEMARCHAKIS, Herakles M., . "Monetary equilibria over an infinite horizon," CORE Discussion Papers RP -1750, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  8. Werner, Jan, 1985. "Equilibrium in economies with incomplete financial markets," Journal of Economic Theory, Elsevier, vol. 36(1), pages 110-119, June.
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  11. Woodford, Michael, 1995. "Price-level determinacy without control of a monetary aggregate," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 43(1), pages 1-46, December.
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  13. Michael Woodford, 2001. "Fiscal Requirements for Price Stability," NBER Working Papers 8072, National Bureau of Economic Research, Inc.
  14. Duffie, Darrell & Shafer, Wayne, 1985. "Equilibrium in incomplete markets: I : A basic model of generic existence," Journal of Mathematical Economics, Elsevier, vol. 14(3), pages 285-300, June.
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  18. Tomoyuki Nakajima & Herakles Polemarchakis, 2005. "Money and Prices Under Uncertainty," Review of Economic Studies, Oxford University Press, vol. 72(1), pages 223-246.
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