Cash-in-advance constraints, bubbles and monetary policy
AbstractIn this paper, we study the equilibrium dynamics of an overlapping generations model with capital, money and cash-in-advance constraints. At each period, the economy can experience two diﬀerent regimes: either the cash-inadvance constraint is binding and money is a dominated asset, or the constraint is strictly satisfied and money has the same return as capital. When the second regime occurs, we say that the economy experiences a temporary bubble. We show the existence of temporary bubbles, and we prove that cyclical equilibria may exist. In these equilibria, the economy experiences some periods without bubbles and some periods with bubbles. We also show that monetary creation can be used in order to eliminate temporary bubbles.
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Bibliographic InfoPaper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00268861.
Date of creation: 2005
Date of revision:
Publication status: Published, Macroeconomic Dynamics, 2005, 9, 1, 28-56
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overlapping generations model; bubbles; cash-in-advance constraint; monetary policy;
Other versions of this item:
- Michel, Philippe & Wigniolle, Bertrand, 2005. "Cash-In-Advance Constraints, Bubbles, And Monetary Policy," Macroeconomic Dynamics, Cambridge University Press, vol. 9(01), pages 28-56, February.
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