Monetary Equilibria in a Baumol-Tobin Economy

Ingolf Schwarz ()
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Ingolf Schwarz: Max Planck Institute for Research on Collective Goods, Bonn

No 2006_15, Discussion Paper Series of the Max Planck Institute for Research on Collective Goods from Max Planck Institute for Research on Collective Goods

Abstract: This paper provides a non-steady state general equilibrium foundation for the transactions demand for money going back to Baumol (1952) and Tobin (1956). In our economy, money competes against real capital as a store of value. We prove existence of a monetary general equilibrium in which both real capital and fiat money are voluntarily held over time. The demand for money is generated by fixed transactions costs. More precisely, we assume that house-holds have two physically separated accounts. On the first account they finance consumption and might want to hold money over time. On the second account households receive their wages, hold claims on capital and earn interest income from renting capital to firms. Every transfer of wealth between the two accounts requires fixed resources. In equilibrium, households space apart the transaction dates in time. Between these transaction dates, money is held as a store of value on the first account for transactions purposes. The number of periods over which money is held is endogenous and the nonconvexity of the problem is explicitly taken into account.

Keywords: Baumol-Tobin; Monetary Theory; General Equilibrium Theory (search for similar items in EconPapers)
JEL-codes: D50 E40 E41 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2006-06
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:mpg:wpaper:2006_15

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