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Cash-in-Advance Constraints in the Diamond Overlapping Generations Model: Neutrality and Optimality of Monetary Policies

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  • Crettez, Bertrand
  • Michel, Philippe
  • Wigniolle, Bertrand

Abstract

This paper is a study of money in overlapping generations models with cash-in-advances constraints. The authors first offer a brief review of different features of the cash-in-advance constraint. Then they propose a general formulation and study the neutrality of money. The authors show that both neutrality and equilibrium dynamics depend on the form of the cash-in-advance constraint. They then show that optimal intergenerational resources sharing can be implemented through monetary transfers. Finally, the authors find that the Chicago Rule is implied by the optimal monetary. Copyright 1999 by Royal Economic Society.

Suggested Citation

  • Crettez, Bertrand & Michel, Philippe & Wigniolle, Bertrand, 1999. "Cash-in-Advance Constraints in the Diamond Overlapping Generations Model: Neutrality and Optimality of Monetary Policies," Oxford Economic Papers, Oxford University Press, vol. 51(3), pages 431-452, July.
  • Handle: RePEc:oup:oxecpp:v:51:y:1999:i:3:p:431-52
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    Cited by:

    1. Michel, P. & Wigniolle, B., 2000. "Temporary Bubbles in an Economy with Under-Accumulation," Papiers d'Economie Mathématique et Applications 2000.91, Université Panthéon-Sorbonne (Paris 1).
    2. Basci, Erdem & Erdogan, Ayse M. & Saglam, Ismail, 2006. "Money, Tobin Effect, and Incerasing Returns," MPRA Paper 1904, University Library of Munich, Germany.
    3. Firouz Gahvari & Luca Micheletto, 2019. "Heterogeneity, monetary policy, Mirrleesian taxes, and the Friedman rule," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 67(4), pages 983-1018, June.
    4. Stefan Homburg, 2015. "Superneutrality of Money under Open Market Operations," CESifo Working Paper Series 5219, CESifo.
    5. Stefano Bosi & Thomas Seegmuller, 2009. "On Rational Exuberance," Post-Print halshs-00367689, HAL.
    6. Gahvari, Firouz & Micheletto, Luca, 2012. "Monetary policy and redistribution: What can or cannot be neutralized with Mirrleesian taxes," Working Paper Series, Center for Fiscal Studies 2012:5, Uppsala University, Department of Economics.
    7. Stefano Bosi, 2005. "Sunspot Bubbles," Documents de recherche 05-25, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
    8. Lu Chia-Hui & Chen Been-Lon & Hsu Mei, 2011. "The Dynamic Relationship between Inflation and Output Growth in a Cash-Constrained Economy," The B.E. Journal of Macroeconomics, De Gruyter, vol. 11(1), pages 1-29, May.
    9. Firouz Gahvari, 2012. "The Friedman Rule in a Model with Endogenous Growth and Cash‐in‐Advance Constraint," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(5), pages 787-823, August.
    10. Bosi, Stefano & Seegmuller, Thomas, 2010. "On rational exuberance," Mathematical Social Sciences, Elsevier, vol. 59(2), pages 249-270, March.
    11. Yanagihara, Mitsuyoshi & Lu, Chen, 2013. "Cash-in-advance constraint, optimal monetary policy, and human capital accumulation," Research in Economics, Elsevier, vol. 67(3), pages 278-288.
    12. Clain-Chamosset-Yvrard, Lise & Seegmuller, Thomas, 2015. "Rational bubbles and macroeconomic fluctuations: The (de-)stabilizing role of monetary policy," Mathematical Social Sciences, Elsevier, vol. 75(C), pages 1-15.
    13. Tarishi Matsuoka, 2011. "Temporary Bubbles and Discount Window Policy," KIER Working Papers 802, Kyoto University, Institute of Economic Research.
    14. Homburg Stefan, 2015. "Superneutrality of Money under Open Market Operations," Review of Economics, De Gruyter, vol. 66(3), pages 289-302, December.
    15. Antoine Riche & Francesco Magris, 2017. "Equilibrium Dynamics in a Two-Sector OLG Model with Liquidity Constraint," Studies in Economic Theory, in: Kazuo Nishimura & Alain Venditti & Nicholas C. Yannelis (ed.), Sunspots and Non-Linear Dynamics, chapter 0, pages 147-174, Springer.
    16. Stefano Bosi & Thomas Seegmuller, 2013. "Rational bubbles and expectation-driven fluctuations," International Journal of Economic Theory, The International Society for Economic Theory, vol. 9(1), pages 69-83, March.
    17. Leopold von Thadden, 2004. "Active monetary policy, passive fiscal policy and the value of pure debt: some further monetarist arithmetic," Money Macro and Finance (MMF) Research Group Conference 2003 108, Money Macro and Finance Research Group.
    18. Luciano Fanti, 2012. "Fertility and money in an OLG model," Discussion Papers 2012/145, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    19. Homburg, Stefan, 2017. "A Study in Monetary Macroeconomics," OUP Catalogue, Oxford University Press, number 9780198807537, November.
    20. Akira Yakita, 2008. "Optimal Nonlinear Taxation in an Overlapping-Generations Setting with Money as an Asset," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 64(1), pages 19-32, March.
    21. Crettez, Bertrand & Michel, Philippe & Wigniolle, Bertrand, 2002. "Seigniorage and public good in an OLG model with cash-in-advance constraints," Research in Economics, Elsevier, vol. 56(4), pages 333-364, December.
    22. von Thadden, Leopold, 2004. "Active monetary policy, passive fiscal policy and the value of public debt: Some further monetarist arithmetic," Journal of Macroeconomics, Elsevier, vol. 26(2), pages 223-251, June.
    23. Michel, Philippe & Wigniolle, Bertrand, 2003. "Temporary bubbles," Journal of Economic Theory, Elsevier, vol. 112(1), pages 173-183, September.

    More about this item

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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