Asset prices and capital accumulation in a monetary economy with incomplete markets
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Sunanda Roy: drake university
GE, Growth, Math methods from EconWPA
The paper studies asset prices and capital accumulation in a monetary economy with non-diversifiable idiosyncratic risks (incomplete markets). A government issued unbacked currency is introduced into agent's preferences in a dynamic GEI (General Equilibrium with Incomplete market) model with CARA preferences and normal disturbances. Closed form expressions for equlibrium allocations and prices are derived under finite and infinite horizons. The paper addresses several monetary issues. In particular, money is shown to be neutral but not superneutral at the steady state. The rate of inflation is shown to adversely affect the steady state capital stock under some situations. Finally the Friedman rule is shown to be non-optimal for some economies.
JEL-codes: C6 D5 D9 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-fmk, nep-mac, nep-mon and nep-sea
Note: Type of Document - pdf; pages: 39
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpge:0508002
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