Econometrica: May 1987, Volume 55, Issue 3
Money and Interest in a Cash-in-Advance Economy
Nancy L. Stokey, Robert E. Lucas, Jr.In this paper we analyze an aggregate general equilibrium model in which the use of money is motivated by a cash-in-advance constraint, applied to purchases of a subset of consumption goods. The system is subject to both real and monetary shocks, which are economy-wide and observed by all. We develop methods for verifying the existence of, characterizing, and explicitly calculating equilibria.
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