Price Determinacy in Ricardian Worlds

13 Pages Posted: 10 Jan 2010  

Rainer Maurer

Pforzheim University

Date Written: January 9, 2010

Abstract

In this paper I analyze the problem of price determinacy in Ricardian economies. Contrary to Bénassy (2005) I show that price determinacy in Ricardian economies is possible, even though no Pigou-effect exists. Under the assumptions of the endowment model of Bénassy (2005), the central bank is able to set the sequence of money supplies such that desired inflation targets, simple interest rate targets and also more complex interest rate rules are realized and at the same time a well determined price level results. As the analysis shows, it is not a Pigou-effect that is working in a Ricardian economy but a transaction volume effect. This mechanisms works independent from the way how money is injected into the economy: either via buying goods on the goods market or as a credit supplied to the capital market.

Keywords: monetary policy rules, price determinacy, Ricardian economy, non-Ricardian economy, Walras’ Law, Pigou-effect, real-balance-effect, transaction volume effect

JEL Classification: E5, B12, B13, B22

Suggested Citation

Maurer, Rainer, Price Determinacy in Ricardian Worlds (January 9, 2010). Available at SSRN: https://ssrn.com/abstract=1533818 or http://dx.doi.org/10.2139/ssrn.1533818

Rainer Maurer (Contact Author)

Pforzheim University ( email )

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