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Debt, liquidity and dynamics

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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Paper provided by Brown University, Department of Economics in its series Working Papers with number 2001-22.

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Date of creation: 2001
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Handle: RePEc:bro:econwp:2001-22
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Department of Economics, Brown University, Providence, RI 02912

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  1. Heracles M. Polemarchakis & P. Siconolfi, 1996. "Prices, Asset Markets and Indeterminacy," Cowles Foundation Discussion Papers 1136, Cowles Foundation for Research in Economics, Yale University.
  2. Costas Azariadis & Roger Guesnerie, 1986. "Sunspots and Cycles," Review of Economic Studies, Oxford University Press, vol. 53(5), pages 725-737.
  3. Dreze, Jacques H, 1975. "Existence of an Exchange Equilibrium under Price Rigidities," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 16(2), pages 301-20, June.
  4. Detemple, J. & Gottardi, P. & Polemarchakis, H. M., 1995. "The relevance of financial policy," European Economic Review, Elsevier, vol. 39(6), pages 1133-1154, June.
  5. Timothy J. Kehoe & David K. Levine, 1984. "Regularity in Overlapping Generations Exchange Economies," Levine's Working Paper Archive 2184, David K. Levine.
  6. Geanakoplos, John & Mas-Colell, Andreu, 1989. "Real indeterminacy with financial assets," Journal of Economic Theory, Elsevier, vol. 47(1), pages 22-38, February.
  7. Joseph M. Ostroy & Ross M. Starr, 1973. "Money and the Decentralization of Exchange," Cowles Foundation Discussion Papers 349, Cowles Foundation for Research in Economics, Yale University.
  8. Benhabib, Jess & Day, Richard H., 1982. "A characterization of erratic dynamics in, the overlapping generations model," Journal of Economic Dynamics and Control, Elsevier, vol. 4(1), pages 37-55, November.
  9. William Poole, 1969. "Optimal choice of monetary policy instruments in a simple stochastic macro model," Special Studies Papers 2, Board of Governors of the Federal Reserve System (U.S.).
  10. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
  11. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-54, August.
  12. POLEMARCHAKIS, Heracles & SICONOLFI, Paolo, . "Asset markets and the information revealed by prices," CORE Discussion Papers RP 1061, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  13. CHAMLEY, Christophe & POLEMARCHAKIS, Herakles, . "Assets, general equilibrium and the neutrality of money," CORE Discussion Papers RP 554, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  14. William Poole, 1970. "Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model," The Quarterly Journal of Economics, Oxford University Press, vol. 84(2), pages 197-216.
  15. Radner, Roy, 1972. "Existence of Equilibrium of Plans, Prices, and Price Expectations in a Sequence of Markets," Econometrica, Econometric Society, vol. 40(2), pages 289-303, March.
  16. GRANDMONT, Jean-Michel & YOUNES, Yves, . "On the efficiency of a monetary equilibrium," CORE Discussion Papers RP 135, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  17. Balasko, Yves & Cass, David & Siconolfi, Paolo, 1990. "The structure of financial equilibrium with exogenous yields : The case of restricted participation," Journal of Mathematical Economics, Elsevier, vol. 19(1-2), pages 195-216.
  18. POLEMARCHAKIS, Heracles & SECCIA, Giulio, 1994. "A Role for Monetary Policy when Prices reveal Information : An Example," CORE Discussion Papers 1994074, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  19. Jayasri Dutta & Sandeep Kapur, 1998. "Liquidity Preference and Financial Intermediation," Review of Economic Studies, Oxford University Press, vol. 65(3), pages 551-572.
  20. Cass, David, 1972. "On capital overaccumulation in the aggregative, neoclassical model of economic growth: A complete characterization," Journal of Economic Theory, Elsevier, vol. 4(2), pages 200-223, April.
  21. Balasko, Yves & Shell, Karl, 1981. "The overlapping-generations model. II. The case of pure exchange with money," Journal of Economic Theory, Elsevier, vol. 24(1), pages 112-142, February.
  22. James Tobin, 1955. "A Dynamic Aggregative Model," Journal of Political Economy, University of Chicago Press, vol. 63, pages 103.
  23. Sargent, Thomas J & Wallace, Neil, 1975. ""Rational" Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 241-54, April.
  24. Jean-Michel Grandmont & Yves Younes, 1972. "On the Role of Money and the Existence of a Monetary Equilibrium," Review of Economic Studies, Oxford University Press, vol. 39(3), pages 355-372.
  25. GRANDMONT, Jean-Michel & LAROQUE, Guy, . "On money and banking," CORE Discussion Papers RP 215, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  26. Debreu, Gerard, 1970. "Economies with a Finite Set of Equilibria," Econometrica, Econometric Society, vol. 38(3), pages 387-92, May.
  27. Jean-Pascal Benassy, 1975. "Neo-Keynesian Disequilibrium Theory in a Monetary Economy," Review of Economic Studies, Oxford University Press, vol. 42(4), pages 503-523.
  28. Lucas, Robert E, Jr, 1980. "Equilibrium in a Pure Currency Economy," Economic Inquiry, Western Economic Association International, vol. 18(2), pages 203-20, April.
  29. Benveniste, Lawrence & Gale, David, 1975. "An extension of Cass' characterization of infinite efficient production programs," Journal of Economic Theory, Elsevier, vol. 10(2), pages 229-238, April.
  30. Wilson, Charles A., 1981. "Equilibrium in dynamic models with an infinity of agents," Journal of Economic Theory, Elsevier, vol. 24(1), pages 95-111, February.
  31. John Geanakoplos & Polemarchakis, Heracles M., 1985. "Walrasian Indeterminacy and Keynesian Macroeconomics," Cowles Foundation Discussion Papers 778, Cowles Foundation for Research in Economics, Yale University.
  32. Grandmont Jean-michel, 1983. "On endogenous competitive business cycles," CEPREMAP Working Papers (Couverture Orange) 8316, CEPREMAP.
  33. Azariadis, Costas, 1981. "Self-fulfilling prophecies," Journal of Economic Theory, Elsevier, vol. 25(3), pages 380-396, December.
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