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Nominal uniqueness and money non-neutrality in the limit-price exchange process

Abstract : 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 expect on optimal rest-points where it becomes a "veil " and trade vanishes. Typically, there is a piecewise globally unique trade-and-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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Contributor : Gaël Giraud <>
Submitted on : Wednesday, November 2, 2011 - 10:17:27 AM
Last modification on : Tuesday, January 19, 2021 - 11:08:49 AM


  • HAL Id : halshs-00637476, version 1


Gaël Giraud, Dimitrios P. Tsomocos. Nominal uniqueness and money non-neutrality in the limit-price exchange process. Econometric Theory, Cambridge University Press (CUP), 2010, 45 (1-2), pp.303-348. ⟨halshs-00637476⟩



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