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Notwithstanding considerable efforts by at least two generations of economic theorists, the state of art of general equilibrium theory in the Arrow-Debreu framework is still extremely unsatisfactory, especially with respect to the treatment of the time dimension. Indeed, it is now taken for granted even among general equilibrium theorists that, to play a significant role, equilibrium analysis must account for individual agents' expectations about the uncertain future, and that the Arrow-Debreu procedure of collapsing the entire decision process at an initial date is to be interpreted, at most, as a counterfactual argument, the main message of the Arrow-Debreu approach being that "one cannot argue that markets co-ordinate activity if there are many of them missing" (Hahn 1995, p. 12).

The purpose of this paper is to study the dynamic behavior of a sequential monetary exchange
economy. Transactions take place sequentially against non-equilibrium prices, there is quantity
rationing, and credit or cash are the only means of exchange. Agents have optimistic or pes-
simistic expectations about quantity constraints that represent their beliefs about future trading
opportunities. In the credit model the agents incur debts along the transition path towards equilibrium, while in the cash-in-advance model convergence takes place without the occurrence of any debts or claims. The credit mechanism is shown to act as a 'soft' correction mechanism on credit
fluctuations, while the cash-in-advance constraint acts as a 'hard' negative feedback effect driving
the prices back towards a neighborhood of a monetary cash-in-advance equilibrium.