Temporary bubbles in an economy with under-accumulation
AbstractThis paper studies the equilibrium dynamics of an overlapping generations model with capital, money and cash-in-advance constraints. At each date the economy can experience two different regimes. In the first one the cash-inadvance constraint is binding and money is a dominated asset. In the second one, the constraint is strictly satisfied and money has the same return as capital. When the second regime holds on some finite interval, we say that the economy experiences a temporary bubble. We prove that temporary bubbles can exist in an economy which would experience under accumulation without money. We also show, in an example, that cyclical bubbles and sunspot equilibria may occur. Finally, we prove that money creation has the power to eliminate bubbles.
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Bibliographic InfoPaper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2000061.
Date of creation: 00 Dec 2000
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overlapping generations model; bubbles; cash-in-advance constraint.;
Other versions of this item:
- Michel, P. & Wigniolle, B., 2000. "Temporary Bubbles in an Economy with Under-Accumulation," Papiers d'Economie MathÃÂ©matique et Applications 2000.91, UniversitÃ© PanthÃ©on-Sorbonne (Paris 1).
- D9 - Microeconomics - - Intertemporal Choice
- E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
- G1 - Financial Economics - - General Financial Markets
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Papiers d'Economie MathÃÂ©matique et Applications
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