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Money, banks and endogenous volatility


  • Pere Gomis-Porqueras

    () (Economics Department, University of Texas at Austin, Austin, TX 78712, USA)


In this paper I consider a monetary growth model in which banks provide liquidity, and the government fixes a constant rate of money creation. There are two underlying assets in the economy, money and capital. Money is dominated in rate of return. In contrast to other papers with a larger set of government liabilities, I find a unique equilibrium when agents' risk aversion is moderate. However, indeterminacies and endogenous volatility can be observed when agents are relatively risk averse.

Suggested Citation

  • Pere Gomis-Porqueras, 2000. "Money, banks and endogenous volatility," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 15(3), pages 735-745.
  • Handle: RePEc:spr:joecth:v:15:y:2000:i:3:p:735-745 Note: Received: March 11, 1999; revised version: March 30, 1999

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    References listed on IDEAS

    1. Oliver D. Hart, 1979. "Monopolistic Competition in a Large Economy with Differentiated Commodities," Review of Economic Studies, Oxford University Press, vol. 46(1), pages 1-30.
    2. Jones, Larry E, 1984. "A Competitive Model of Commodity Differentiation," Econometrica, Econometric Society, vol. 52(2), pages 507-530, March.
    3. Konrad PODCZECK, 1998. "Quasi-Equilibrium and Equilibrium in a Large Production Economy with Differentiated Commodities," Vienna Economics Papers vie9811, University of Vienna, Department of Economics.
    4. Ostroy, Joseph M., 1984. "On the existence of walrasian equilibrium in large-square economies," Journal of Mathematical Economics, Elsevier, vol. 13(2), pages 143-163, October.
    5. Beth Allen, 2005. "On the definition of differentiated products in the real world," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 25(1), pages 3-20, January.
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    Cited by:

    1. repec:hal:journl:halshs-00268861 is not listed on IDEAS
    2. 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.
    3. Tarishi Matsuoka, 2011. "Temporary Bubbles and Discount Window Policy," KIER Working Papers 802, Kyoto University, Institute of Economic Research.
    4. Michel, Philippe & Wigniolle, Bertrand, 2003. "Temporary bubbles," Journal of Economic Theory, Elsevier, vol. 112(1), pages 173-183, September.

    More about this item


    Spatial separation; Endogenous volatility; Incomplete insurance.;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy


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