Incomplete markets and monetary policy

Pascal Gourdel and Leila Triki ()
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Leila Triki: CERMSEM

Cahiers de la Maison des Sciences Economiques from Université Panthéon-Sorbonne (Paris 1)

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 that 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: Cash-in-advance constraints; incomplete markets; nominal assets; monetary equilibrium; money; nominal interest rate (search for similar items in EconPapers)
JEL-codes: C62 D52 E40 E50 G10 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2005-01
New Economics Papers: this item is included in nep-dge, nep-fin, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Working Paper: Incomplete markets and monetary policy (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:mse:wpsorb:b05024

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