Stochastic Tastes and Money in a Neo-Keynesian Economy
Zurich IEER Working Paper No. 88
21 Pages Posted: 17 Oct 2001
Date Written: August 2001
This paper studies a monetary economy with heterogenous agents in which trade takes place in a centralized market. Each agent is a potential producer and consumer of a service (or perishable good) but has stochastic preferences that determines his taste for the good in each period in time. Money serves as a medium of exchange as well as a store of value. We prove existence of stationary fix-price equilibria with exogenously given quantity of money in which transactions can take place at non-Walrasian prices. Precautionary savings, under- and oversupply, dynamics on money holdings, and the effects of changes in the quantity of money are discussed.
Keywords: Microeconomic models of money, stochastic preferences, fix-price equilibria, rationing, dynamics of money distributions
JEL Classification: D51, E41, E52
Suggested Citation: Suggested Citation