Nominal Uniqueness and Money Non-neutrality in the Limit-Price Exchange Process

Gaël Giraud and Dimitrios Tsomocos

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

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 except on optimal rest-points where it becomes a "veil" and trade vanishes. Typically, there is a peicewise globally unique trade-ant-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: Bank, money; price-quantity dynamics; inside money; outside money; rational expectations; liquidity; double auction; limit-price orders; inflation; bounded rationality (search for similar items in EconPapers)
JEL-codes: D50 D83 E12 E24 E30 E40 E41 E50 E58 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2010-06
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mon and nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Published in Economic Theory, 45, 2010, pp.303–348

Downloads: (external link)
http://mse.univ-paris1.fr/pub/mse/CES2010/10061.pdf (application/pdf)
https://doi.org/10.1007/s00199-009-0507-4

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)
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:mse:cesdoc:10061

Access Statistics for this paper

More papers in Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne Contact information at EDIRC.
Bibliographic data for series maintained by Lucie Label ().