Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/65756
Authors: 
Dixon, Huw
Pourpourides, Panayiotis M.
Year of Publication: 
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.
Subjects: 
cash-in-advance
general equilibrium
monopolistic competition
JEL: 
D43
E31
E41
E51
Document Type: 
Working Paper

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