Browsing by Subject "Cash-in-advance"

Now showing 1 - 4 of 4

Open Access
Currency substitution: a numerical dynamic programming approach
(1998) Volkan, Engin
This thesis conducts a theoretical study on currency substitution in an infinitelylived small open financially repressed economy which is subject to stochastic inflation shocks. For this purpose, a dynamic programming model is constructed under the assumption that purchasing power parity holds. The solution of the model through value function iteration shows that under high inflation, and financial repression, the inhibitants of an economy will demand foreign currency to the extend that it provides a better protection of their wealth against inflation.
Open Access
Does money matter? A deterministic model with cash-in-advance constraints in factor markets
(Springer, Berlin, Heidelberg, 1999) Başçı, Erdem; Sağlam, İsmail; Alkan, A.; Aliprantis, C. D.; Yannelis, N. C.
This paper points to the importance of finance constraints in affecting competitive outcomes in economies that operate with money. We study a simple dynamic economy that operates through the use of fiat money under cash-in-advance constraints in all markets. We assume that the labor market opens before the goods market and the total money stock changes at a constant rate. After describing the economy, we define and characterize its stationary monetary competitive equilibria (Sl\ICE). In all cases where SMCE exist, the real wage is observed to be below the marginal product of labor and negatively related to the money growth rate, leaving positive pure profits to the firms. Only under Friedman's optimal money supply rule, zero pure profits are obtained. Neutrality of money is also studied in this context. In cases where the SMCE is unique, the equilibrium is Pareto efficient and money is neutral. In the case of continuum of equilibria and under sticky wages, which is consistent with market clearing in this model, the level of money stock can affect levels of output, employment, and welfare.
Open Access
On the importance of sequencing of markets in monetary economies
(Springer, 2003) Başçı, Erdem; Sağlam, İsmail; Sertel, M. R.; Koray, Semih
This paper studies money as working capital in a general equilibrium model. We argue that the way transactions are settled is the main determinant of the presence or lack of working capital in a cash-in-advance economy. In a production cycle, if the wage payments are made before sales proceeds are collected, firms have a financing need. This need alone brings, in a long run equilibrium, a deviation of real wages from marginal product of labor due to a ‘working capital premium’ in output prices. In contrast, if sales revenues can be collected before production costs are paid, then the working capital premium vanishes. These results are obtained in an economy with borrowing constraints, full equity financing, and optimal dividend policy.
Open Access
Optimal money growth in a limited participation model with heterogeneous agents
(2005) Başçi, E.; Saglam I.
This paper studies optimal money growth in a cash-in-advance production economy with heterogeneity in patience levels and know-how. We show that the rate of deflation suggested by the Friedman rule is limited by the subjective discount rate of the most patient agent in the economy. The output distortion due to cash-in-advance constraints on firms can completely be eliminated by means of the Friedman rule if and only if firms are run by the most patient agents. © Springer-Verlag 2005.