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Debt, liquidity and dynamics

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Author Info
POLEMARCHAKIS, Heracles M.
ROCHON, CŽline
Abstract

Money, which provides liquidity services, is distinct from debt. The introduction of a bank that issues money in exchange for debt and pays out its profit as dividend to shareholders modifies the model of overlapping generations. The set of equilibrium paths, their dynamic properties, as well as the scope and effectiveness of monetary policy are significantly altered: 1) there is a continuum of pareto comparable steady state paths, indexed by the nominal rate of interest; 2) monetary policy, which is effective, can set, alternatively, the nominal rate of interest, the circulation of real balances or the rate of inflation; and 3) though low rates of interest are associated with superior steady state allocations, they may account for unstable steady states or stable endogenous cycles.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 1999034.

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Date of creation: 01 Jun 1999
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Handle: RePEc:cor:louvco:1999034

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Related research
Keywords: money; liquidity; debt; overlapping generations; dynamics.;

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Find related papers by JEL classification:
E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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  1. Polemarchakis, H M & Siconolfi, P, 1993. "Asset Markets and the Information Revealed by Prices," Economic Theory, Springer, vol. 3(4), pages 645-61, October.
  2. Geanakoplos, John & Mas-Colell, Andreu, 1989. "Real indeterminacy with financial assets," Journal of Economic Theory, Elsevier, vol. 47(1), pages 22-38, February. [Downloadable!] (restricted)
  3. Balasko, Yves & Shell, Karl, 1981. "The overlapping-generations model. II. The case of pure exchange with money," Journal of Economic Theory, Elsevier, vol. 24(1), pages 112-142, February. [Downloadable!] (restricted)
  4. Sargent, Thomas J & Wallace, Neil, 1975. ""Rational" Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 241-54, April. [Downloadable!] (restricted)
  5. Timothy J. Kehoe & David K. Levine, 1984. "Regularity in Overlapping Generations Exchange Economies," Levine's Working Paper Archive 2184, David K. Levine. [Downloadable!]
    Other versions:
  6. Chamley, Christophe & Polemarchakis, Herakles, 1984. "Assets, General Equilibrium and the Neutrality of Money," Review of Economic Studies, Blackwell Publishing, vol. 51(1), pages 129-38, January. [Downloadable!] (restricted)
  7. Azariadis, Costas, 1981. "Self-fulfilling prophecies," Journal of Economic Theory, Elsevier, vol. 25(3), pages 380-396, December. [Downloadable!] (restricted)
  8. Grandmont, Jean-Michel, 1985. "On Endogenous Competitive Business Cycles," Econometrica, Econometric Society, vol. 53(5), pages 995-1045, September. [Downloadable!] (restricted)
  9. Polemarchakis, H. M. & Siconolfi, P., 1998. "Prices, Asset Markets and Indeterminacy," Journal of Economic Theory, Elsevier, vol. 82(1), pages 46-64, September. [Downloadable!] (restricted)
  10. William Poole, 1970. "Optimal choice of monetary policy instruments in a simple stochastic macro model," Staff Studies 57, Board of Governors of the Federal Reserve System (U.S.).
    Other versions:
  11. Dutta, Jayasri & Kapur, Sandeep, 1998. "Liquidity Preference and Financial Intermediation," Review of Economic Studies, Blackwell Publishing, vol. 65(3), pages 551-72, July. [Downloadable!] (restricted)
  12. Debreu, Gerard, 1970. "Economies with a Finite Set of Equilibria," Econometrica, Econometric Society, vol. 38(3), pages 387-92, May. [Downloadable!] (restricted)
  13. Cass, David, 1972. "On capital overaccumulation in the aggregative, neoclassical model of economic growth: A complete characterization," Journal of Economic Theory, Elsevier, vol. 4(2), pages 200-223, April. [Downloadable!] (restricted)
  14. Benhabib, Jess & Day, Richard H., 1982. "A characterization of erratic dynamics in, the overlapping generations model," Journal of Economic Dynamics and Control, Elsevier, vol. 4(1), pages 37-55, November. [Downloadable!] (restricted)
  15. Wilson, Charles A., 1981. "Equilibrium in dynamic models with an infinity of agents," Journal of Economic Theory, Elsevier, vol. 24(1), pages 95-111, February. [Downloadable!] (restricted)
  16. Benveniste, Lawrence & Gale, David, 1975. "An extension of Cass' characterization of infinite efficient production programs," Journal of Economic Theory, Elsevier, vol. 10(2), pages 229-238, April. [Downloadable!] (restricted)
  17. Grandmont, Jean-Michel & Younes, Yves, 1972. "On the Role of Money and the Existence of a Monetary Equilibrium," Review of Economic Studies, Blackwell Publishing, vol. 39(3), pages 355-72, July. [Downloadable!] (restricted)
  18. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-54, August. [Downloadable!] (restricted)
  19. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April. [Downloadable!] (restricted)
  20. POLEMARCHAKISÊ, Heracles & SECCIA, Giulio, 1994. "A Role for Monetary Policy when Prices reveal Information : An Example," CORE Discussion Papers 1994074, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  21. Grandmont, Jean-Michel & Laroque, Guy, 1975. "On Money and Banking," Review of Economic Studies, Blackwell Publishing, vol. 42(2), pages 207-36, April. [Downloadable!] (restricted)
  22. Grandmont, Jean-Michel & Younes, Yves, 1973. "On the Efficiency of a Monetary Equilibrium," Review of Economic Studies, Blackwell Publishing, vol. 40(2), pages 149-65, April. [Downloadable!] (restricted)
  23. James Tobin, 1955. "A Dynamic Aggregative Model," Journal of Political Economy, University of Chicago Press, vol. 63, pages 103. [Downloadable!] (restricted)
  24. Dreze, Jacques H, 1975. "Existence of an Exchange Equilibrium under Price Rigidities," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 16(2), pages 301-20, June. [Downloadable!] (restricted)
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