General equilibrium with monopolistic firms and occasionally binding cash-in-advance constraints

Dixon, Huw David ORCID: https://orcid.org/0000-0002-9875-8965 and Pourpourides, Panayiotis ORCID: https://orcid.org/0000-0002-2986-4094 2010. General equilibrium with monopolistic firms and occasionally binding cash-in-advance constraints. [Working Paper]. Cardiff Economics Working Papers, vol. 2010/6. Cardiff: Cardiff Business School. Available at: http://business.cardiff.ac.uk/sites/default/files/...

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Abstract

We show a simple way to introduce monopolistic competition in a general equi- librium model where prices are fully flexible, the velocity of money is variable and cash-in-advance (CIA) constraints occasionally bind. We establish the conditions under which money has real e¤ects and demonstrate that an equilibrium that occurs at a binding CIA constraint is welfare inferior to any equilibrium that occurs at a non- binding 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.

Item Type:	Monograph (Working Paper)
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Subjects:	H Social Sciences > HB Economic Theory
Uncontrolled Keywords:	Cash-in-advance; general equilibrium; monopolistic competition
Publisher:	Cardiff Business School
Date of First Compliant Deposit:	30 March 2016
Last Modified:	09 Nov 2022 08:47
URI:	https://orca.cardiff.ac.uk/id/eprint/43587

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