Fiat money and the value of binding portfolio constraints

Páscoa, MR, Petrassi, M and Torres-Martínez, JP (2011) Fiat money and the value of binding portfolio constraints Economic Theory, 46 (2). pp. 189-209.

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Abstract

We establish necessary and sufficient conditions for the individual optimality of a consumption-portfolio plan in an infinite horizon economy where agents are uniformly impatient and fiat money is the only asset available for intertemporal transfers of wealth. Next, we show that fiat money has a positive equilibrium price if and only if for some agent the zero short sale constraint is binding and has a positive shadow price (now or in the future). As there is always an agent that is long, it follows that marginal rates of intertemporal substitution never coincide across agents. That is, monetary equilibria are never full Pareto efficient. We also give a counter-example illustrating the occurrence of monetary bubbles under incomplete markets in the absence of uniform impatience. © 2009 Springer-Verlag.

Item Type:	Article
Divisions :	Surrey research (other units)
Authors :	Páscoa, MR, Petrassi, M and Torres-Martínez, JP
Date :	1 January 2011
DOI :	10.1007/s00199-009-0510-9
Depositing User :	Symplectic Elements
Date Deposited :	16 May 2017 15:12
Last Modified :	24 Jan 2020 14:04
URI:	http://epubs.surrey.ac.uk/id/eprint/817924

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