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Title:General equilibrium with monopolistic firms and occasionally binding cash-in-advance constraints PDF Logo
Authors:Dixon, Huw
Pourpourides, Panayiotis M.
Issue Date:2010
Series/Report no.:Cardiff Economics Working Papers E2010/6
Abstract:We show a simple way to introduce monopolistic competition in a general equilibrium model where prices are fully .exible, the velocity of money is variable and cash-in-advance (CIA) constraints occasionally bind.We establish the conditions under which money has real effects and demonstrate that an equilibrium that occurs at a binding CIA constraint is welfare inferior to any equilibrium that occurs at a nonbinding 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.
general equilibrium
monopolistic competition
Document Type:Working Paper
Appears in Collections:Cardiff Economics Working Papers, Cardiff Business School, Cardiff University

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