Welfare-improving debt constraints
We show that in economies without liquidity frictions, but with incomplete financial markets, when agents are infinitely lived and uniformly impatient, money can still be essential (that is, have a positive price in equilibrium) if and only if each agent has binding debt constraints at some node of her life span. That is, contrary to what might be expected, in the absence of a very productive financial market, frictions induced by debt constraints create some room for improving efficiency, by allowing money to have a role in transferring wealth across dates and states of nature.
|Date of creation:||Mar 2007|
|Date of revision:||Dec 2007|
|Contact details of provider:|| Postal: |
Phone: 021 35271078
Fax: 021 35271084
Web page: http://www.econ.puc-rio.br
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, 1996.
"Incomplete markets over an infinite horizon: Long-lived securities and speculative bubbles,"
Journal of Mathematical Economics,
Elsevier, vol. 26(1), pages 133-170.
- Magill, M. & Quinzii, M., 1993. "Icomplete Markets Over an Infinite Horizon: Long-Lived Securities and Speculative Bubbles," Papers 9321, Southern California - Department of Economics.
- Hernandez D., Alejandro & Santos, Manuel S., 1996. "Competitive Equilibria for Infinite-Horizon Economies with Incomplete Markets," Journal of Economic Theory, Elsevier, vol. 71(1), pages 102-130, October.
- 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.
- Manuel Santos, 2006. "The value of money in a dynamic equilibrium model," Economic Theory, Springer, vol. 27(1), pages 39-58, 01.
When requesting a correction, please mention this item's handle: RePEc:rio:texdis:541. 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: ()
If references are entirely missing, you can add them using this form.