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Debt, liquidity and dynamics

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Listed author(s):
  • Céline Rochon

    ()

  • Herakles Polemarchakis

    ()

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    Abstract

    Money, which provides liquidity, is distinct from debt. The introduction of a bank that issues money in exchange for debt and pPolemarchakisays out its profit as dividend to shareholders modifies the model of overlapping generations. The set of equilibrium paths, their dynamic properties, as well as the scope and effectiveness of monetary policy are significantly altered: though low rates of interest are associated with superior steady state allocations, stability of the steady state may require a nominal rate of interest above a certain minimum: without production, a decrease in the nominal rate of interest may result in explosive behavior or convergence to an endogenous cycle, while in an economy with production, an increase in the nominal rate of interest may lead to indeterminacy and fluctuations. Copyright Springer-Verlag Berlin/Heidelberg 2006

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    File URL: http://hdl.handle.net/10.1007/s00199-004-0582-5
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    Article provided by Springer & Society for the Advancement of Economic Theory (SAET) in its journal Economic Theory.

    Volume (Year): 27 (2006)
    Issue (Month): 1 (01)
    Pages: 179-211

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    Handle: RePEc:spr:joecth:v:27:y:2006:i:1:p:179-211
    DOI: 10.1007/s00199-004-0582-5
    Contact details of provider: Web page: http://www.springer.com

    Web page: http://saet.uiowa.edu/

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    Order Information: Web: http://www.springer.com/economics/economic+theory/journal/199/PS2

    Keywords: Overlapping generations; Money; Liquidity constraints; Debt; Dynamics.;

    Other versions of this item:

    Find related papers by JEL classification:
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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    Cited by:

    1. Hillebrand, Marten & Kikuchi, Tomoo, 2012. "A mechanism for booms and busts in housing prices," Working Paper Series in Economics 40, Karlsruhe Institute of Technology (KIT), Department of Economics and Business Engineering.
    2. Hippolyte d’Albis & Emmanuelle Augeraud-Véron, 2007. "Balanced cycles in an OLG model with a continuum of finitely-lived individuals," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 30(1), pages 181-186, January.
    3. 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.
    4. Kunieda, Takuma & Shibata, Akihisa, 2016. "Asset bubbles, economic growth, and a self-fulfilling financial crisis," Journal of Monetary Economics, Elsevier, vol. 82(C), pages 70-84.
    5. Kunieda, Takuma & Shibata, Akihisa, 2011. "Endogenous Growth and Fluctuations in an Overlapping Generations Economy with Credit Market Imperfections," MPRA Paper 35698, University Library of Munich, Germany.
    6. Kunieda, Takuma, 2008. "Asset bubbles and borrowing constraints," Journal of Mathematical Economics, Elsevier, vol. 44(2), pages 112-131, January.
    7. Kunieda, Takuma, 2008. "Finance and Growth Cycles," MPRA Paper 11340, University Library of Munich, Germany.
    8. Real Arai & Takuma Kunieda & Keigo Nishida, 2014. "Is Public Debt Growth-Enhancing or Growth-Reducing?," KIER Working Papers 884, Kyoto University, Institute of Economic Research.

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