Monetary Equilibria in a Cash-in-Advance Economy with Incomplete Financial Markets

Jinhui Bai and Ingolf Schwarz ()
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Ingolf Schwarz: Department of Economics, Georgetown University

Working Papers from Georgetown University, Department of Economics

Abstract: The general equilibrium model with incomplete financial markets (GEI) is extended by adding fiat money, fiscal and monetary policy and a cash-in-advance constraint. The central bank either pegs the interest rate or money supply while the fiscal authority sets a Ricardian or a non-Ricardian fiscal plan. We prove the existence of equilibria in all four scenarios. In Ricardian economies, the conditions required for existence are not more restrictive than in standard GEI. In non-Ricardian economies, the sufficient conditions for existence are more demanding. In the Ricardian economy, neither the price level nor the equivalent martingale measure is determinate.

Keywords: Money; Incomplete Markets; Fiscal Policy; Indeterminacy (search for similar items in EconPapers)
JEL-codes: D52 E40 E50 (search for similar items in EconPapers)
Date: 2006-06-05
New Economics Papers: this item is included in nep-cba, nep-dge, nep-fmk, nep-mac, nep-mon and nep-pbe
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Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Monetary equilibria in a cash-in-advance economy with incomplete financial markets (2006)
Working Paper: Monetary Equilibria in a Cash-in-Advance Economy with Incomplete Financial Markets (2005)
Working Paper: Monetary Equilibria in a Cash-in-Advance Economy with Incomplete Financial Markets (2005)
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