Logo
Munich Personal RePEc Archive

Fiat money and the value of binding portfolio constraints

Páscoa, Mário R. and Petrassi, Myrian and Torres-Martínez, Juan Pablo (2009): Fiat money and the value of binding portfolio constraints.

Warning
There is a more recent version of this item available.
[thumbnail of MPRA_paper_13782.pdf]
Preview
PDF
MPRA_paper_13782.pdf

Download (260kB) | Preview

Abstract

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.

Available Versions of this Item

Atom RSS 1.0 RSS 2.0

Contact us: mpra@ub.uni-muenchen.de

This repository has been built using EPrints software.

MPRA is a RePEc service hosted by Logo of the University Library LMU Munich.