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General equilibrium with monopolistic firms and occasionally binding cash-in-advance constraints

Dixon, Huw David and Pourpourides, Panayiotis 2010. General equilibrium with monopolistic firms and occasionally binding cash-in-advance constraints. [Working Paper]. Cardiff Economics Working Papers, vol. 2010/6. Cardiff: Cardiff Business School. Available at: http://business.cardiff.ac.uk/sites/default/files/...

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Abstract

We show a simple way to introduce monopolistic competition in a general equi- librium model where prices are fully flexible, the velocity of money is variable and cash-in-advance (CIA) constraints occasionally bind. We establish the conditions under which money has real e¤ects and demonstrate that an equilibrium that occurs at a binding CIA constraint is welfare inferior to any equilibrium that occurs at a non- binding CIA constraint with the same level of technology. We argue that even though the probability of a binding CIA constraint can be increasing with money supply, under certain conditions, expansionary money supply is welfare improving.

Item Type: Monograph (Working Paper)
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Subjects: H Social Sciences > HB Economic Theory
Uncontrolled Keywords: Cash-in-advance; general equilibrium; monopolistic competition
Publisher: Cardiff Business School
Date of First Compliant Deposit: 30 March 2016
Last Modified: 14 Nov 2017 00:11
URI: http://orca.cf.ac.uk/id/eprint/43587

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