The Cash-in-Advance Constraint <Back to Last Page>     <Full Glossary>

Definition of The Cash-in-Advance Constraint: The cash-in-advance constraint is a modeling idea. In a basic Arrow-Debreu general equilibrium there is no need for money because exchanges are automatic, through a Walrasian auctioneer. To study monetary phenomena, a class of models was made in which money was required to make purchases of other goods. In such a model the budget constraint is written so that the agent must have enough cash on hand to make any consumption purchase. Using this mechanism money can have a positive price in equilibrium and monetary effects can be seen in such models. Contrast money-in-the-utility function for an alternative modeling approach. (Econterms)

Terms related to The Cash-in-Advance Constraint:

• Walrasian auctioneer
• Money-in-the-utility function

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