Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/26874
Authors: 
Bai, Jinhui H.
Schwarz, Ingolf
Year of Publication: 
2005
Series/Report no.: 
Preprints of the Max Planck Institute for Research on Collective Goods 2005,18
Abstract: 
The general equilibrium model with incomplete financial markets (GEI) is extended by adding fiat money, fiscal and monetary policy and a cash-in-advance constraint. The central bank either pegs the interest rate or money supply while the fiscal authority sets a Ricardian or a non-Ricardian fiscal plan. We prove the existence of equilibria in all four scenarios. In Ricardian economies, the conditions required for existence are not more restrictive than in standard GEI. In non- Ricardian economies, the sufficient conditions for existence are more demanding. In the Ricardian economy, neither the price level nor the equivalent martingale measure are determinate.
Subjects: 
Money
Incomplete Markets
Fiscal Policy
Indeterminacy
JEL: 
D52
E40
E50
Document Type: 
Working Paper

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