Fiat money and the value of binding portfolio constraints

Mario Pascoa, Myrian Petrassi and Juan Pablo Torres-Martinez

MPRA Paper from University Library of Munich, Germany

Abstract: We establish necessary and sufficient conditions for the individual optimality of a consumption-portfolio plan in an infinite horizon economy where agents are uniformly impatient and fiat money is the only asset available for inter-temporal transfers of wealth. Next, we show that fiat money has a positive equilibrium price if and only if for some agent the zero short sale constraint is binding and has a positive shadow price (now or in the future). As there is always an agent that is long, it follows that marginal rates of inter-temporal substitution never coincide across agents. That is, monetary equilibria are never full Pareto efficient. We also give a counter-example illustrating the occurrence of monetary bubbles under incomplete markets in the absence of uniform impatience.

Keywords: Binding credit constraints; Fundamental value of money; Asset pricing bubbles (search for similar items in EconPapers)
JEL-codes: C61 E44 (search for similar items in EconPapers)
Date: 2009-03
New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
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https://mpra.ub.uni-muenchen.de/13782/1/MPRA_paper_13782.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/18293/1/MPRA_paper_18293.pdf revised version (application/pdf)

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 (2008)
Working Paper: Fiat money and the value of binding portfolio constraints (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:13782

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