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Money and Interest in a Cash-in-Advance Economy

Robert E. Lucas, Jr. and Nancy L. Stokey
Econometrica
Vol. 55, No. 3 (May, 1987), pp. 491-513
Published by: The Econometric Society
DOI: 10.2307/1913597
Stable URL: http://www.jstor.org/stable/1913597
Page Count: 23
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Money and Interest in a Cash-in-Advance Economy
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Abstract

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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