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Asset prices and capital accumulation in a monetary economy with incomplete markets

Author

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  • sunanda roy

    (drake university)

Abstract

The paper studies asset prices and capital accumulation in a monetary economy with non-diversifiable idiosyncratic risks (incomplete markets). A government issued unbacked currency is introduced into agent's preferences in a dynamic GEI (General Equilibrium with Incomplete market) model with CARA preferences and normal disturbances. Closed form expressions for equlibrium allocations and prices are derived under finite and infinite horizons. The paper addresses several monetary issues. In particular, money is shown to be neutral but not superneutral at the steady state. The rate of inflation is shown to adversely affect the steady state capital stock under some situations. Finally the Friedman rule is shown to be non-optimal for some economies.

Suggested Citation

  • sunanda roy, 2005. "Asset prices and capital accumulation in a monetary economy with incomplete markets," GE, Growth, Math methods 0508002, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpge:0508002
    Note: Type of Document - pdf; pages: 39
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/ge/papers/0508/0508002.pdf
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    References listed on IDEAS

    as
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    JEL classification:

    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • D9 - Microeconomics - - Micro-Based Behavioral Economics

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