Money, expectations and the existence of a temporary equilibrium

The article presents information on money, expectations and the existance of a temporary equilibrium. If money and financial assets are to be integrated into general equilibrium theory, it is apparent that the classical Arrow-Debreu framework must be modified. As long as all trading takes place esse...

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Main Author: HOOL, Bryce
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Language:English
Published: Institutional Knowledge at Singapore Management University 1976
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Online Access:https://ink.library.smu.edu.sg/soe_research/1772
https://ink.library.smu.edu.sg/context/soe_research/article/2771/viewcontent/MoneyExpectationsTempEquilibrium_1976.pdf
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spelling sg-smu-ink.soe_research-27712018-02-01T05:28:54Z Money, expectations and the existence of a temporary equilibrium HOOL, Bryce The article presents information on money, expectations and the existance of a temporary equilibrium. If money and financial assets are to be integrated into general equilibrium theory, it is apparent that the classical Arrow-Debreu framework must be modified. As long as all trading takes place essentially at some initial point in time, with each individual subject only to a present value budget constraint, there is no place in the system for money, either as a medium of exchange or as a store of value, even if uncertainty about future states of the world is introduced as in G. Debreu's work, for example. It is natural then to consider an economy with sequential trading, and the appropriate Walrasian equilibrium concept becomes the Hicksian temporary equilibrium. In this article it is shown that, if the actual "Clower" constraint is used to introduce into the Wairasian model the requirement that money be used as the medium of exchange, it is possible to demonstrate the existence of a temporary monetary equilibrium (TME), with a much weaker restriction on expectations. More precisely, it is shown that the class of price expectations consistent with the existence of a TME includes expectations with elasticity up to and including unity. If the expenditure constraint is added to the basic Patinkin model we can establish the existence of a short-run equilibrium in that model, subject to a mild condition on initial endowments expressing the desirability of an intertemporal transfer of wealth. 1976-10-01T07:00:00Z text application/pdf https://ink.library.smu.edu.sg/soe_research/1772 info:doi/10.2307/2297220 https://ink.library.smu.edu.sg/context/soe_research/article/2771/viewcontent/MoneyExpectationsTempEquilibrium_1976.pdf http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection School Of Economics eng Institutional Knowledge at Singapore Management University Money Commodities Cash Economic expectations Economic uncertainty Economics Consumer goods Endowments Economic theory Media of exchange Finance Public Economics
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic Money
Commodities
Cash
Economic expectations
Economic uncertainty
Economics
Consumer goods
Endowments
Economic theory
Media of exchange
Finance
Public Economics
spellingShingle Money
Commodities
Cash
Economic expectations
Economic uncertainty
Economics
Consumer goods
Endowments
Economic theory
Media of exchange
Finance
Public Economics
HOOL, Bryce
Money, expectations and the existence of a temporary equilibrium
description The article presents information on money, expectations and the existance of a temporary equilibrium. If money and financial assets are to be integrated into general equilibrium theory, it is apparent that the classical Arrow-Debreu framework must be modified. As long as all trading takes place essentially at some initial point in time, with each individual subject only to a present value budget constraint, there is no place in the system for money, either as a medium of exchange or as a store of value, even if uncertainty about future states of the world is introduced as in G. Debreu's work, for example. It is natural then to consider an economy with sequential trading, and the appropriate Walrasian equilibrium concept becomes the Hicksian temporary equilibrium. In this article it is shown that, if the actual "Clower" constraint is used to introduce into the Wairasian model the requirement that money be used as the medium of exchange, it is possible to demonstrate the existence of a temporary monetary equilibrium (TME), with a much weaker restriction on expectations. More precisely, it is shown that the class of price expectations consistent with the existence of a TME includes expectations with elasticity up to and including unity. If the expenditure constraint is added to the basic Patinkin model we can establish the existence of a short-run equilibrium in that model, subject to a mild condition on initial endowments expressing the desirability of an intertemporal transfer of wealth.
format text
author HOOL, Bryce
author_facet HOOL, Bryce
author_sort HOOL, Bryce
title Money, expectations and the existence of a temporary equilibrium
title_short Money, expectations and the existence of a temporary equilibrium
title_full Money, expectations and the existence of a temporary equilibrium
title_fullStr Money, expectations and the existence of a temporary equilibrium
title_full_unstemmed Money, expectations and the existence of a temporary equilibrium
title_sort money, expectations and the existence of a temporary equilibrium
publisher Institutional Knowledge at Singapore Management University
publishDate 1976
url https://ink.library.smu.edu.sg/soe_research/1772
https://ink.library.smu.edu.sg/context/soe_research/article/2771/viewcontent/MoneyExpectationsTempEquilibrium_1976.pdf
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