IDEAS home Printed from https://ideas.repec.org/a/fep/journl/v4y1991i1p24-32.html
   My bibliography  Save this article

Monopolistic competition, overlapping generations, and the role of monetary policy

Author

Listed:
  • Roberto Chang

    (New York University, USA)

Abstract

This paper studies a simple overlapping generations model (OGM) with monopolistic competition in goods markets. I show that the set of rational expectations equilibria of the model can be characterized by a simple difference equation in the real quantity of money, in the same way as the standard, competitive OGM. The monopolistic competition case results, however, in less output, consumption, and lower welfare relative to the competitive case. The model is then used to reexamine some issues of monetary policy. Previous studies have stressed that the existence of imperfect competition in goods markets may justify activist monetary policy. I show that this rationale for policy intervention remains true in dynamic models, although transmissions mechanisms and policy prescriptions turn out to be very different. This is shown by discussing the effectiveness of monetary policy, the optimal quantity of money, and the welfare cost of inflationary finance.

Suggested Citation

  • Roberto Chang, 1991. "Monopolistic competition, overlapping generations, and the role of monetary policy," Finnish Economic Papers, Finnish Economic Association, vol. 4(1), pages 24-32, Spring.
  • Handle: RePEc:fep:journl:v:4:y:1991:i:1:p:24-32
    as

    Download full text from publisher

    File URL: http://taloustieteellinenyhdistys.fi/images/stories/fep/f1991_1c.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
    2. Judd, Kenneth L, 1985. "Short-run Analysis of Fiscal Policy in a Simple Perfect Foresight Model," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 298-319, April.
    3. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, pages 177-200.
    4. Andrew B. Abel, "undated". "The Implications of Insurance for the Efficacy of Fiscal Policy," Rodney L. White Center for Financial Research Working Papers 6-88, Wharton School Rodney L. White Center for Financial Research.
    5. Friend, Irwin & Blume, Marshall E, 1975. "The Demand for Risky Assets," American Economic Review, American Economic Association, vol. 65(5), pages 900-922, December.
    6. Benninga, Simon & Protopapadakis, Aris, 1986. "General equilibrium properties of the term structure of interest rates," Journal of Financial Economics, Elsevier, vol. 16(3), pages 389-410, July.
    7. Grossman, Herschel I & Lucas, Robert F, 1974. "The Macro-Economic Effects of Productive Public Expenditures," The Manchester School of Economic & Social Studies, University of Manchester, vol. 42(2), pages 162-170, June.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fep:journl:v:4:y:1991:i:1:p:24-32. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Editorial Secretary). General contact details of provider: http://edirc.repec.org/data/talouea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.