A Strategic Market Game with Active Bankruptcy

John Geanakoplos (), Ioannis Karatzas, Martin Shubik and William D. Sudderth
Additional contact information
John Geanakoplos: Cowles Foundation, Yale University, https://economics.yale.edu/people/faculty/john-geanakoplos
Ioannis Karatzas: Columbia University

No 1183, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: We construct stationary Markov equilibria for an economy with fiat money, one non-durable commodity, countably-many time periods, and a continuum of agents. The total production of commodity remains constant, but individual agents' endowments fluctuate in a random fashion, from period to period. In order to hedge against these random fluctuations, agents find it useful to hold fiat money which they can borrow or deposit at appropriate rates of interest; such activity may take place either at a central bank (which fixes interest rates judiciously) or through a money-market (in which interest rates are determined endogenously). We carry out an equilibrium analysis, based on a careful study of Dynamic Programming equations and on properties of the Invariant Measures for associated optimally-controlled Markov chains. This analysis yields the stationary distribution of wealth across agents, as well as the stationary price (for the commodity) and interest rates (for the borrowing and lending of fiat money). A distinctive feature of our analysis is the incorporation of bankruptcy, both as a real possibility in an individual agent's optimization problem, as well as a determinant of interest rates through appropriate balance equations. These allow a central bank (respectively, a money-market) to announce (respectively, to determine endogenously) interest rates in a way that conserves the total money-supply and controls inflation. General results are provided for the existence of such stationary equilibria, and several explicitly solvable examples are treated in detail.

Pages: 42 pages
Date: 1998-06
Note: CFP 1008.
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Published in Journal of Mathematical Economics (2000), 34(3): 359-396

Downloads: (external link)
https://cowles.yale.edu/sites/default/files/files/pub/d11/d1183.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found

Related works:
Journal Article: A strategic market game with active bankruptcy (2000)
Working Paper: A Strategic Market Game with Active Bankruptcy (1999)
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: https://EconPapers.repec.org/RePEc:cwl:cwldpp:1183

Ordering information: This working paper can be ordered from
Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA
The price is None.

Access Statistics for this paper

More papers in Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University Yale University, Box 208281, New Haven, CT 06520-8281 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Brittany Ladd ().