On the Usefulness of the Constrained Planning Problem in a Model of Money

Joydeep Bhattacharya () and Rajesh Singh

Staff General Research Papers from Iowa State University, Department of Economics

Abstract: In this paper, we study a decentralized monetary economy with a specified set of markets, rules of trade, an equilibrium concept, and a restricted set of policies and derive a set of equilibrium (monetary) allocations. Next we set up a simpler constrained planning problem in which we restrict the planner to choose from a set that contains the set of equilibrium allocations in the decentralized economy. If there is a government policy that allows the decentralized economy to achieve the constrained planner's allocation, then it is the optimal policy choice. To illustrate the power of such analyses, we solve such planning problems in three monetary environments with limited communication. The upshot is that solving constrained planning problems is an extremely "efficient" (easy and quick) way of deriving optimal policies for the corresponding decentralized economies.

Keywords: planning problems; overlapping generations; random relocation model (search for similar items in EconPapers)
JEL-codes: E4 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
Date: 2006-08-23
View list of references

Published in Macroeconomic Dynamics, September 2008, Vol. 12, No. 4, pp. 503-525.

Downloads: (external link)
http://www.econ.iastate.edu/research/webpapers/paper_12660_06027.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:isu:genres:12660

Access Statistics for this paper

More papers in Staff General Research Papers from Iowa State University, Department of Economics
Address: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Contact information at EDIRC.
Series data maintained by Stephanie Bridges ().