About: Cash-in-advance constraint

The cash-in-advance constraint, also known as the Clower constraint after American economist Robert W. Clower, is an idea used in economic theory to capture monetary phenomena. In the most basic economic models (such as the Walras model or the Arrow–Debreu model) there is no role for money, as these models are not sufficiently detailed to consider how people pay for goods, other than to say everyone has a budget constraint. To be able to say anything about the money supply, inflation, monetary policy and so on, economists must therefore introduce additional assumptions into their models. One possibility, and the more popular one, is to introduce a cash-in-advance constraint i.e. a requirement that each consumer or firm must have sufficient cash available before they can buy goods. An alter