Fiat Money and the Value of Binding Portfolio Constraints

Mario Pascoa, Myrian Petrassi and Juan Pablo Torres-Martinez

No 176, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: It is well known that, under uniform impatience, positive net supply assets are free of bubbles for non-arbitrage kernel deflators that yield finite present values of wealth. However, this does not mean that prices cannot be above the series of deflated dividends for the deflators given by the agents' marginal rates of substitution, which also yield finite present values of wealth. In particular, binding no-short-sales constraints lead to positive prices of fiat money. These monetary equilibria are Pareto improvements but they are still inefficient.

Date: 2008-12
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
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Related works:
Journal Article: Fiat money and the value of binding portfolio constraints (2011)
Working Paper: Fiat money and the value of binding portfolio constraints (2009)
Working Paper: Fiat money and the value of binding portfolio constraints (2008)
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