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Decreasing Transaction Costs and Endogenous Fluctuations in a Monetary Model

Listed author(s):
  • Antoine Le Riche

    ()

    (GAINS, Aix-Marseille University (Aix-Marseille School of Economics), GREQAM, CNRS & EHESS)

  • Francesco Magris

    ()

    (LEO, University “François Rabelais” of Tours)

We study an infinite horizon economy with a representative agent whose utility function includes consumption, real balances and leisure. Real balances enter the utility function pre-multiplied by a parameter reflecting the inverse of the degree of financial market imperfection, i.e. the inverse of the transaction costs justifying the introduction of money in the utility function. When labor is supplied elastically, indeterminacy arises through a transcritical and a flip bifurcation, for degree of financial imperfection arbitrarily close to zero. Similar results are observed when labor is supplied inelastically: indeterminacy occurs through a flip bifurcation for values of the degree of financial imperfection unbounded away from zero. We also study the existence and the multiplicity of the steady states.

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Paper provided by Aix-Marseille School of Economics, Marseille, France in its series AMSE Working Papers with number 1535.

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Length: 21 pages
Date of creation: 11 Sep 2015
Handle: RePEc:aim:wpaimx:1535
Contact details of provider: Web page: http://www.amse-aixmarseille.fr/en

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  1. Stockman, Alan C., 1981. "Anticipated inflation and the capital stock in a cash in-advance economy," Journal of Monetary Economics, Elsevier, vol. 8(3), pages 387-393.
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