General equilibrium with nonconvexities, sunspots, and money

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

No 513, Working Paper from Federal Reserve Bank of Cleveland

Abstract: We study general equilibrium with nonconvexities. In these economies there exist sunspot equilibria without the usual assumptions needed in convex economies, and they have good welfare properties. Moreover, in these equilibria, agents act as if they have quasi-linear utility. Hence wealth effects vanish. We use this to construct a new model of monetary exchange. As in Lagos-Wright, trade occurs in both centralized and decentralized markets, but while that model requires quasilinearity, we have general preferences. Given our specification looks much like the textbook Arrow-Debreu model, we think this constitutes progress on the classic problem of integrating money and general equilibrium theory. We also use the model to discuss another classic issue: the relation between inflation and unemployment.

Keywords: Equilibrium (Economics); Money (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
Date: 2005
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Related works:
Working Paper: General Equilibrium with NonConvexities, Sunspots and Money (2006)
Working Paper: General Equilibrium with Nonconvexities, Sunspots, and Money (2005)
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