Money and Interest in a Cash-in-Advance Economy

43 Pages Posted: 19 Jun 2004 Last revised: 5 Jun 2021

See all articles by Robert E. Lucas

Robert E. Lucas

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER)

Nancy L. Stokey

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: May 1985

Abstract

In this paper we analyze an aggregative general equilibrimi 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. A main result of the analysis is that current money growth affects the current real allocation only insofar as it affects expectations about future money growth, i.e., only through its value as a signal.

Suggested Citation

Lucas, Robert E. and Stokey, Nancy L., Money and Interest in a Cash-in-Advance Economy (May 1985). NBER Working Paper No. w1618, Available at SSRN: https://ssrn.com/abstract=336345

Robert E. Lucas (Contact Author)

University of Chicago - Department of Economics ( email )

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United States

National Bureau of Economic Research (NBER)

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Nancy L. Stokey

University of Chicago - Department of Economics ( email )

1126 East 59th Street
Chicago, IL 60637
United States
773-702-8490 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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