Money and Interest in Cash-In-Advance Economy
In this paper we analyze an aggregative general equilibrimi model in which the use of money is motivated by a cash-in-advance constraint, applied to purchases of a subset of consumption goods. The system is subject to both real and monetary shocks, which are economy-wide and observed by all. We develop methods for verifying the existence of, characterizing, and explicitly calculating equilibria. A main result of the analysis is that current money growth affects the current real allocation only insofar as it affects expectations about future money growth, i.e., only through its value as a signal.
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|Date of creation:||Oct 1984|
|Contact details of provider:|| Postal: Center for Mathematical Studies in Economics and Management Science, Northwestern University, 580 Jacobs Center, 2001 Sheridan Road, Evanston, IL 60208-2014|
Web page: http://www.kellogg.northwestern.edu/research/math/
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- Benveniste, L M & Scheinkman, J A, 1979. "On the Differentiability of the Value Function in Dynamic Models of Economics," Econometrica, Econometric Society, vol. 47(3), pages 727-732, May.
- Litterman, Robert B & Weiss, Laurence M, 1985.
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Econometric Society, vol. 53(1), pages 129-156, January.
- Robert B. Litterman & Laurence Weiss, 1983. "Money, Real Interest Rates, and Output: A Reinterpretation of Postwar U.S. Data," NBER Working Papers 1077, National Bureau of Economic Research, Inc.
- Robert B. Litterman & Laurence M. Weiss, 1984. "Money, real interest rates, and output: a reinterpretation of postwar U.S. data," Staff Report 89, Federal Reserve Bank of Minneapolis.
- Lucas, Robert Jr., 1982. "Interest rates and currency prices in a two-country world," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 335-359.
- Lucas, Robert Jr. & Stokey, Nancy L., 1983. "Optimal fiscal and monetary policy in an economy without capital," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 55-93.
- Robert E. Lucas Jr. & Nancy L. Stokey, 1982. "Optimal Fiscal and Monetary Policy in an Economy Without Capital," Discussion Papers 532, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Townsend, Robert M., 1987. "Asset-return anomalies in a monetary economy," Journal of Economic Theory, Elsevier, vol. 41(2), pages 219-247, April.
- Sims, Christopher A, 1972. "Money, Income, and Causality," American Economic Review, American Economic Association, vol. 62(4), pages 540-552, September.
- 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 919-944, October. Full references (including those not matched with items on IDEAS)
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