Incomplete markets and monetary policy
We consider an extension of a general equilibrium model with incomplete markets that considers cash-in-advance constraints. The total amount of money is supplied by an authority, which produces at no cost and lends money to agents at short term nominal rates of interest, meeting the demand. Agents have initial nominal claims, which in the aggregate, are the counterpart of an initial public debt. The authority covers its expenditures, including initial debt, through public revenues that consists of taxes and seignorage, and distributes its eventual budget surpluses through transfers to individuals, while no further instruments are available to correct eventual budget deficits. We define a concept of equilibrium in this extended model, and prove that there exists a monetary equilibrium with no transfers. Moreover, we show that if the price level is high enough, a monetary equilibrium with transfers exists.
|Date of creation:||Jan 2005|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 01 44 07 81 00
Fax: 01 44 07 81 09
Web page: http://mse.univ-paris1.fr/
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.:
- Magill,Michael & Quinzii,Martine, 1989.
"Real effects of money in general equilibrium,"
Discussion Paper Serie A
232, University of Bonn, Germany.
- Monique Florenzano, 2007.
Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers)
- Monique Florenzano, 2008. "General equilibrium," Documents de travail du Centre d'Economie de la Sorbonne b08005, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
- Robert E. Lucas, Jr. & Nancy L. Stokey, 1985.
"Money and Interest in a Cash-in-Advance Economy,"
NBER Working Papers
1618, National Bureau of Economic Research, Inc.
- Werner, Jan, 1985. "Equilibrium in economies with incomplete financial markets," Journal of Economic Theory, Elsevier, vol. 36(1), pages 110-119, June.
- Lucas, Robert Jr., 1990. "Liquidity and interest rates," Journal of Economic Theory, Elsevier, vol. 50(2), pages 237-264, April.
- DREZE, Jacques & POLEMARCHAKIS, Heracles, 2000.
CORE Discussion Papers
2000044, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- 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.
- Duffie, Darrell, 1987. "Stochastic equilibria with incomplete financial markets," Journal of Economic Theory, Elsevier, vol. 41(2), pages 405-416, April.
- Woodford, Michael, 1994. "Monetary Policy and Price Level Determinacy in a Cash-in-Advance Economy," Economic Theory, Springer, vol. 4(3), pages 345-80.
- 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.
When requesting a correction, please mention this item's handle: RePEc:mse:wpsorb:b05024. 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: (Lucie Label)
If references are entirely missing, you can add them using this form.