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|Title:||General equilibrium with monopolistic firms and occasionally binding cash-in-advance constraints |
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.|
|Document Type:||Working Paper|
|Appears in Collections:||Cardiff Economics Working Papers, Cardiff Business School, Cardiff University|
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