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Autre Publication Scientifique Documents de travail du Centre d'Économie de la Sorbonne Année : 2010

Nominal Uniqueness and Money Non-neutrality in the Limit-Price Exchange Process

Résumé

We define continuous-time dynamics for exchange economies with fiat money. Traders have locally rational expectations, face a cash-in-advance constraint, and continuously adjust their short-run dominant strategy in a monetary strategic market game involving a double-auction with limit-price orders. Money has a positive value except on optimal rest-points where it becomes a "veil" and trade vanishes. Typically, there is a peicewise globally unique trade-ant-price curve both in real and in nominal variables. Money is not neutral, either in the short-run or long-run, and a localized version of the quantity theory of money holds in the short-run. An optimal money growth rate is derived, which enables monetary trade curves to converge towards Pareto optimal rest-points. Below this growth rate, the economy enters a (sub-optimal) liquidity trap where monetary policy is ineffective; above this threshold inflation rises. Finally, market liquidity, measured through the speed of real trades, can be linked to gains-to-trade, households' expectations, and the quantity of circulating money.
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halshs-00505141 , version 1 (22-07-2010)

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  • HAL Id : halshs-00505141 , version 1

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Gaël Giraud, Dimitrios P. Tsomocos. Nominal Uniqueness and Money Non-neutrality in the Limit-Price Exchange Process. 2010. ⟨halshs-00505141⟩
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