Hysteresis in Dynamic General Equilibrium Models with Cash-in-Advance Constraints
AbstractIn this paper, we investigate equilibrium cycles in dynamic general equilibrium models with cash-in-advance constraints. Our findings are two-fold. First, in such models, if an equilibrium cycle exists, then there also exists a continuum of equilibrium cycles in its neighborhood. Second, the limit cycle, to which a dynamic path converges, varies continuously according to the initial distribution of the money holdings. Thus, temporary shocks that affect the initial distribution have permanent effects in such models; that is, such models exhibit hysteresis. Furthermore, we also explore the logic behind the results.
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Date of creation: Oct 2010
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- Kazuya Kamiya & Takashi Shimizu, 2010. "Hysteresis in Dynamic General Equilibrium Models with Cash-in-Advance Constraints," CARF F-Series CARF-F-232, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
- NEP-ALL-2010-11-27 (All new papers)
- NEP-DGE-2010-11-27 (Dynamic General Equilibrium)
- NEP-MAC-2010-11-27 (Macroeconomics)
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