General Equilibrium with Monopolistic Firms and Occasionally Binding Cash-in-Advance Constraints

Huw Dixon and Panayiotis Pourpourides

No E2010/6, Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section

Abstract: We show a simple way to introduce monopolistic competition in a general equilibrium model where prices are fully flexible, the velocity of money is variable and cash-in-advance (CIA) constraints occasionally bind. We establish the conditions under which money has real effects and demonstrate that an equilibrium that occurs at a binding CIA constraint is welfare inferior to any equilibrium that occurs at a non-binding CIA constraint with the same level of technology. We argue that even though the probability of a binding CIA constraint can be increasing with money supply, under certain conditions, expansionary money supply is welfare improving.

Keywords: general equilibrium; monopolistic competition (search for similar items in EconPapers)
JEL-codes: D43 E31 E41 E51 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2010-07
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mon
References: Add references at CitEc
Citations:

Downloads: (external link)
http://carbsecon.com/wp/E2010_6.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cdf:wpaper:2010/6

Access Statistics for this paper

More papers in Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section Contact information at EDIRC.
Bibliographic data for series maintained by Yongdeng Xu ().