Global Uniqueness and
Money Non-neutrality in a Walrasian Dynamics without Rational Expectations
Gael Giraud:
CNRS umr 8095, CERMSEM, Universite Paris-1, France. ggiraud@univ-paris1.fr
Dimitrios Tsomocos: Said Business School
University and St. Edmund Hall, University of Oxford and Financial Markets
Group, UK.
Abstract
We define a non-tātonnement dynamics in
continuous-time for pure exchange economies with outside and inside fiat
money. Traders are myopic, face a cash-in-advance constraint, and play
dominant strategies in a short-run monetary strategic market game involving
the limit-price mechanism. The profits of the Bank are redistributed to its
private shareholders, but they can use them to pay their own debts in the
next period. Provided there is enough inside money, monetary trade curves
converge towards Pareto optimal allocations; money has a positive value
along each trade curve (except on the optimal rest-point where it becomes a
veil while trades vanish), and is neutral in the short-run. Moreover,
generically, given initial conditions, there is a piecewise globally unique
trade-and-price curve not only in real, but also in nominal variables.
Finally, is not neutral in the long-run.
Keywords. Bank; Money; Price-quantity
Dynamics; Limit-price mechanism; Inside money; Outside money.
JEL Classification: D50, E40, E41, E50, E58.
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