Páscoa, Mário R. and Petrassi, Myrian and Torres-Martínez, Juan Pablo (2009): Fiat money and the value of binding portfolio constraints.
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We establish necessary and sufficient conditions for the individual optimality of a consumption-portfolio plan in an infinite horizon economy where agents are uniformly impatient and fiat money is the only asset available for inter-temporal transfers of wealth. Next, we show that fiat money has a positive equilibrium price if and only if for some agent the zero short sale constraint is binding and has a positive shadow price (now or in the future). As there is always an agent that is long, it follows that marginal rates of inter-temporal substitution never coincide across agents. That is, monetary equilibria are never full Pareto efficient. We also give a counter-example illustrating the occurrence of monetary bubbles under incomplete markets in the absence of uniform impatience.
|Item Type:||MPRA Paper|
|Original Title:||Fiat money and the value of binding portfolio constraints|
|Keywords:||Binding credit constraints, Fundamental value of money, Asset pricing bubbles|
|Subjects:||C - Mathematical and Quantitative Methods > C6 - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling > C61 - Optimization Techniques; Programming Models; Dynamic Analysis
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy
|Depositing User:||Juan Pablo Torres-Martínez|
|Date Deposited:||05. Mar 2009 10:09|
|Last Modified:||13. Feb 2013 05:53|
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