Money, Wealth and Overlapping Generations
AbstractIn this paper, we use Weil's (1989) overlapping dynasties framework to analyse a microfounded version of the real balance effect envisaged by Pigou (1944). The effect is absent from representative agent models as then net monetary wealth is always zero. With population growth, however, net monetary wealth is positive and a real balance effect emerges much as Pigou predicted. Our main conclusion, however, is a Keynesian one: rather than eliminating the possibility of a trap, the framework generating the real balance effect if anything makes a trap more likely due to the heightened constraints it imposes on the monetary authority.
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Bibliographic InfoPaper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2003 with number 2.
Date of creation: 04 Jun 2003
Date of revision:
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liquidity trap; real balance effect; Pigou effect; monetary policy; Japan;
Find related papers by JEL classification:
- E0 - Macroeconomics and Monetary Economics - - General
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
- E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-06-16 (All new papers)
- NEP-DGE-2003-06-16 (Dynamic General Equilibrium)
- NEP-MON-2003-06-16 (Monetary Economics)
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