EconPapers    
Economics at your fingertips  
 

On Imperfect Competition with Occasionally Binding Cash-in-Advance Constraints

Huw Dixon () and Panayiotis Pourpourides ()

No 2011-3, Working Papers from Central Bank of Cyprus

Abstract: We provide extensive theoretical analysis of the general equilibrium of an economy with imperfect competition in the final goods sector, endogenous production and fully flexible prices in the presence of occasionally binding cash-in-advance (CIA) constraints, under general assumptions about the velocity of money. Whether the CIA constraint binds or not and the induced variability of the velocity of money depend on expectations of risk-averse consumers about the future relative value of money as well as the degree of imperfect competition. We establish the uniqueness of the equilibrium, the conditions under which money has real effects, even in the absence of other real assets, and examine the role of imperfect competition and welfare implications. With perfect foresight, in a zero-inflation steady state the CIA constraint strictly binds and output is less than would occur when the CIA constraint is non-binding. There is also an optimal negative steady-state inflation rate. Finally, we consider how the introduction of capital and bonds would fit into the framework.

Keywords: Cash-in-advance; general equilibrium; monopolistic competition; imperfect competition; money velocity. (search for similar items in EconPapers)
JEL-codes: D43 E31 E41 E51 (search for similar items in EconPapers)
Pages: 64 pages
Date: 2011-08
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://www.centralbank.cy/images/media/pdf/NPWPE_No3_082011.pdf (application/pdf)

Related works:
Journal Article: On imperfect competition with occasionally binding cash-in-advance constraints (2016) Downloads
Working Paper: On Imperfect Competition with Occasionally Binding Cash-in-Advance Constraints (2012) Downloads
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:cyb:wpaper:2011-3

Access Statistics for this paper

More papers in Working Papers from Central Bank of Cyprus Contact information at EDIRC.
Bibliographic data for series maintained by Anna Markidou ().

 
Page updated 2023-01-25
Handle: RePEc:cyb:wpaper:2011-3