Nominal uniqueness and money non-neutrality in the limit-price exchange process

Gaël Giraud and Dimitrios Tsomocos

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: We define continuous-time dynamics for exchange economies with fiat money. Traders have locally rational expectations, face a cash-in-advance constraint, and continuously adjust their short-run dominant strategy in a monetary strategic market game involving a double-auction with limit-price orders. Money has a positive value expect on optimal rest-points where it becomes a "veil " and trade vanishes. Typically, there is a piecewise globally unique trade-and-price curve both in real and in nominal variables. Money is not neutral, either in the short-run or long-run and a localized version of the quantity theory of money holds in the short-run. An optimal money growth rate is derived, which enables monetary trade curves to converge towards Pareto optimal rest-points. Below this growth rate, the economy enters a (sub-optimal) liquidity trap where monetary policy is ineffective ; above this threshold inflation rises. Finally, market liquidity, measured through the speed of real trades, can be linked to gains-to-trade, households' expectations, and the quantity of circulating money.

Keywords: Bounded rationality; Bank; Money; Price-quantity dynamics; Inside money; Outside money; Rational expectations; Liquidity; Double auction; Limit-price orders; Inflation; Bounded rationality.; Banque; monnaie; dynamique en prix et quantités; monnaie interne; monnaie externe; anticipations rationnels; liquidité; enchère double; ordres de prix-limite; rationalité limitée. (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (7)

Published in Econometric Theory, 2010, 45 (1-2), pp.303-348. ⟨10.1007/s00199-009-0507-4⟩

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Related works:
Journal Article: Nominal uniqueness and money non-neutrality in the limit-price exchange process (2010)
Working Paper: Nominal Uniqueness and Money Non-neutrality in the Limit-Price Exchange Process (2010)
Working Paper: Nominal Uniqueness and Money Non-neutrality in the Limit-Price Exchange Process (2010)
Working Paper: Nominal uniqueness and money non-neutrality in the limit-price exchange process (2010)
Working Paper: Nominal uniqueness and money non-neutrality in the limit-price exchange process (2010)
Working Paper: Nominal Uniqueness and Money Non-neutrality in the Limit-Price Exchange Process (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:halshs-00637476

DOI: 10.1007/s00199-009-0507-4

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