Monetary Equilibria in a Baumol-Tobin Economy
This paper provides a non-steady state general equilibrium foundation for the transactions demand for money going back to Baumol (1952) and Tobin (1956). In our economy, money competes against real capital as a store of value. We prove existence of a monetary general equilibrium in which both real capital and fiat money are voluntarily held over time. The demand for money is generated by fixed transactions costs. More precisely, we assume that house-holds have two physically separated accounts. On the first account they finance consumption and might want to hold money over time. On the second account households receive their wages, hold claims on capital and earn interest income from renting capital to firms. Every transfer of wealth between the two accounts requires fixed resources. In equilibrium, households space apart the transaction dates in time. Between these transaction dates, money is held as a store of value on the first account for transactions purposes. The number of periods over which money is held is endogenous and the nonconvexity of the problem is explicitly taken into account.
|Date of creation:||Jun 2006|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +49-(0)228 / 91416-0
Fax: +49-(0)228 / 91416-55
Web page: http://www.coll.mpg.de/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Chatterjee, Satyajit & Corbae, Dean, 1992.
"Endogenous Market Participation and the General Equilibrium Value of Money,"
Journal of Political Economy,
University of Chicago Press, vol. 100(3), pages 615-46, June.
- Chatterjee, S. & Corbae, D., 1990. "Endogenous Market Participation and the General Equelibrium Value of Money," Working Papers 90-30a, University of Iowa, Department of Economics.
- DREZE, Jacques & POLEMARCHAKIS, Heracles, 1995.
CORE Discussion Papers
1995078, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Romer, David, 1986. "A Simple General Equilibrium Version of the Baumol-Tobin Model," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 663-85, November.
- Grossman, Sanford & Weiss, Laurence, 1983. "A Transactions-Based Model of the Monetary Transmission Mechanism," American Economic Review, American Economic Association, vol. 73(5), pages 871-80, December.
- Zeira, Joseph, 2005. "Money and the Size of Transactions," CEPR Discussion Papers 5010, C.E.P.R. Discussion Papers.
- Hellwig, Martin F., 1993. "The challenge of monetary theory," European Economic Review, Elsevier, vol. 37(2-3), pages 215-242, April.
- Jovanovic, Boyan, 1982. "Inflation and Welfare in the Steady State," Journal of Political Economy, University of Chicago Press, vol. 90(3), pages 561-77, June.
- Christian Ghiglino, 2003.
"Wealth inequality and dynamic stability,"
dp0310, Universitaet Bern, Departement Volkswirtschaft.
- Fernando Alvarez & Andrew Atkeson & Chris Edmond, 2003. "On the Sluggish Response of Prices to Money in an Inventory-Theoretic Model of Money Demand," NBER Working Papers 10016, National Bureau of Economic Research, Inc.
- Douglas Gale & Martin Hellwig, 1984. "A General-Equilibrium Model of the Transactions Demand for Money," STICERD - Theoretical Economics Paper Series 100, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
When requesting a correction, please mention this item's handle: RePEc:mpg:wpaper:2006_15. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marc Martin)
If references are entirely missing, you can add them using this form.