Nominal Uniqueness and Money Non-neutrality in the Limit-Price Exchange Process

Gaël Giraud and Dimitrios Tsomocos

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: We define continuous-time dynamics for exchange economies with fiat money. Traders have locally rational expectations, face a cash-in-advance constraint, and continuously adjust their short-run dominant strategy in a monetary strategic market game involving a double-auction with limit-price orders. Money has a positive value except on optimal rest-points where it becomes a "veil" and trade vanishes. Typically, there is a peicewise globally unique trade-ant-price curve both in real and in nominal variables. Money is not neutral, either in the short-run or long-run, and a localized version of the quantity theory of money holds in the short-run. An optimal money growth rate is derived, which enables monetary trade curves to converge towards Pareto optimal rest-points. Below this growth rate, the economy enters a (sub-optimal) liquidity trap where monetary policy is ineffective; above this threshold inflation rises. Finally, market liquidity, measured through the speed of real trades, can be linked to gains-to-trade, households' expectations, and the quantity of circulating money.

Keywords: double auction; limit-price orders; inflation; bounded rationality; Bank; money; price-quantity dynamics; inside money; outside money; rational expectations; liquidity (search for similar items in EconPapers)
Date: 2010-06
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00505141v1
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Citations: View citations in EconPapers (8)

Published in 2010

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Related works:
Journal Article: Nominal uniqueness and money non-neutrality in the limit-price exchange process (2010)
Working Paper: Nominal uniqueness and money non-neutrality in the limit-price exchange process (2010)
Working Paper: Nominal Uniqueness and Money Non-neutrality in the Limit-Price Exchange Process (2010)
Working Paper: Nominal uniqueness and money non-neutrality in the limit-price exchange process (2010)
Working Paper: Nominal uniqueness and money non-neutrality in the limit-price exchange process (2010)
Working Paper: Nominal Uniqueness and Money Non-neutrality in the Limit-Price Exchange Process (2010)
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