Money in Hart's model of imperfect competition

Abstract

Hart's macroeconomic model with imperfect competition is recast in a temporary monetary equilibrium setting, first with a single representative consumer, then with overlapping generations of consumers. Production technology is generalised to permit unemployment for a wider range of parameter values. The key result is that an increase in the money supply raises output provided that the elasticity of expectations of future with respect to current prices is not unity: whether above or below unity is immaterial. It is later argued that a unit elasticity is not a necessary requirement for ‘rational’ forecasting behaviour.