Cash-In-Advance Constraints, Bubbles, And Monetary Policy
In 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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Volume (Year): 9 (2005)
Issue (Month): 01 (February)
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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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