Money and Indeterminacy Over an Infinite Horizon
Brown University Dept. of Economics Working Paper No. 02-12
35 Pages Posted: 24 May 2002
Date Written: April 2002
Abstract
Money provides liquidity services through a cash-in-advance constraint. The exchange of commodities and assets extends over an infinite horizon under uncertainty and a complete asset market. Monetary policy sets the path of rates of interest and accommodates the demand for balances. Competitive equilibria exist. But, for a fixed path of rates of interest, there is a non-trivial multiplicity of equilibrium paths of prices of commodities. Determinacy requires that, subject to no-arbitrage and in addition to rates of interest, the prices of state-contingent revenues be set.
Keywords: Money, equilibrium, indeterminacy, monetary policy, fiscal policy
JEL Classification: D50, E40, E50
Suggested Citation: Suggested Citation