Incomplete markets and monetary policy

Pascal Gourdel () and Leila Triki ()
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Pascal Gourdel: CERMSEM - CEntre de Recherche en Mathématiques, Statistique et Économie Mathématique - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique
Leila Triki: CERMSEM - CEntre de Recherche en Mathématiques, Statistique et Économie Mathématique - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique

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Abstract: We consider an extension of a general equilibrium model with incomplete markets that considers cash-in-advance constraints. The total amount of money is supplied by an authority, which produces at no cost and lends money to agents at short term nominal rates of interest, meeting the demand. Agents have initial nominal claims, which in the aggregate, are the counterpart of an initial public debt. The authority covers its expenditures, including initial debt, through public revenues which consists of taxes and seignorage, and distributes its eventual budget surpluses through transfers to individuals, while no further instruments are available to correct eventual budget deficits. We define a concept of equilibrium in this extended model, and prove that there exists a monetary equilibrium with no transfers. Moreover, we show that if the price level is high enough, a monetary equilibrium with transfers exists.

Keywords: nominal interest rate; money; monetary equilibrium; nominal assets; incomplete markets; cash-in-advance constraints; marchés incomplets; actifs nominaux; équilibres monétaires; monnaie; taux d'intérêt nominaux; contraintes de "Cash-in-advance" (search for similar items in EconPapers)
Date: 2005-01
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00193970
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Citations: View citations in EconPapers (4)

Published in 2005

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00193970

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