Páscoa, Mário R. and Petrassi, Myrian and TorresMartínez, Juan Pablo (2009): Fiat money and the value of binding portfolio constraints.
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Abstract
We establish necessary and sufficient conditions for the individual optimality of a consumptionportfolio plan in an infinite horizon economy where agents are uniformly impatient and fiat money is the only asset available for intertemporal 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 intertemporal substitution never coincide across agents. That is, monetary equilibria are never full Pareto efficient. We also give a counterexample 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 
Language:  English 
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 
Item ID:  13782 
Depositing User:  Juan Pablo TorresMartínez 
Date Deposited:  05. Mar 2009 10:09 
Last Modified:  13. Feb 2013 05:53 
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URI:  http://mpra.ub.unimuenchen.de/id/eprint/13782 
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