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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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.
Item Type: | MPRA Paper |
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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 Torres-Martínez |
Date Deposited: | 05 Mar 2009 10:09 |
Last Modified: | 27 Sep 2019 21:43 |
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URI: | https://mpra.ub.uni-muenchen.de/id/eprint/13782 |
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