General equilibrium with nonconvexities and money

Guillaume Rocheteau (), Peter Rupert (), Karl Shell () and Randall Wright ()

Journal of Economic Theory, 2008, vol. 142, issue 1, pages 294-317

Abstract: In a general-equilibrium economy with nonconvexities, there are sunspot equilibria with good welfare properties; sunspots can ameliorate the effects of the nonconvexities. For these economies, we show that agents act as if they have quasi-linear utility functions. We use this result to construct a new model of monetary exchange along the lines of Lagos and Wright, where trade occurs in both centralized and decentralized markets, but instead of quasi-linear preferences we assume general preferences but with indivisible labor. This suggests that modern monetary theory is more robust than one might have thought. It also constitutes progress on the classic problem of integrating monetary economics and general-equilibrium theory.

Date: 2008
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Persistent link: http://EconPapers.repec.org/RePEc:eee:jetheo:v:142:y:2008:i:1:p:294-317

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