Cash-in-advance constraints in production and the functional distribution of income

Date

1998

Author

Başçı, Erdem
Sağlam, İsmail

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This paper is an attempt to demonstrate the effects of cash-in-advancc constraints on competitive outcomes. We study a simple dynamic cconomy with labor being the only factor of production and assume that the labor market opens before the goods market. We characterize the stationary monetary competitive equilibria (SMCE) of the financially constrained cconomy and show that none of the equilibria coincides with the Arrow-Debreu equilibrium sincc the real wages turn out to be always below the marginal product of labor in SMCE. We also study the neutrality of money and establish the conditions under which an unexpected jump in the money supply may be non-neutral.

URI

http://www2.feas.metu.edu.tr/metusd/ojs/index.php/metusd
https://hdl.handle.net/11511/108320

Collections

Department of Economics, Article