A Credit Mechanism for Selecting a Unique Competitive Equilibrium

Abstract:     
A credit mechanism is considered that selects a unique competitive equilibrium (CE) of an exchange economy. It is shown that a price normalization calling for a fixed monetary value for the total wealth in the economy and the addition of appropriate default penalties together result in a construction of a simple credit mechanism that selects a unique CE.

Note: An updated version of this abstract can be found at: http://ssrn.com/abstract=875632

Number of Pages in PDF File: 13

Keywords: Banknotes, competitive equilibrium, credit line, Lagrangian multiplier, IOU, welfare economics

JEL Classification: D5, C72, E4

working papers series