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Hysteresis in Dynamic General Equilibrium Models with Cash-in-Advance Constraints

  • Kazuya Kamiya

    (The University of Technology Sydney)

  • Takashi Shimizu

    (Kansai University)

In this paper, we investigate equilibrium cycles in dynamic general equilibrium models with cash-in-advance constraints. Our findings are two-fold. First, in such models, if an equilibrium cycle exists, then there also exists a continuum of equilibrium cycles in its neighborhood. Second, the limit cycle, to which a dynamic path converges, varies continuously according to the initial distribution of the money holdings. Thus, temporary shocks that affect the initial distribution have permanent effects in such models; that is, such models exhibit hysteresis. Furthermore, we also explore the logic behind the results.

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Paper provided by Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo in its series CARF F-Series with number CARF-F-232.

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Length: 37 pages
Date of creation: Oct 2010
Date of revision:
Handle: RePEc:cfi:fseres:cf232
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  1. Edward J. Green & Ruilin Zhou, 2000. "Dynamic monetary equilibrium in a random-matching economy," Working Paper Series WP-00-1, Federal Reserve Bank of Chicago.
  2. Green, Edward J. & Zhou, Ruilin, 1998. "A Rudimentary Random-Matching Model with Divisible Money and Prices," Journal of Economic Theory, Elsevier, vol. 81(2), pages 252-271, August.
  3. Richard Baldwin, 1988. "Hysteresis In Import Prices: The Beachhead Effect," NBER Working Papers 2545, National Bureau of Economic Research, Inc.
  4. Olivier J. Blanchard, 1986. "Hysteresis and Unemployment," Working papers 430, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Kazuya Kamiya & Takashi Shimizu, 2005. "On the Role of Tax-Subsidy Scheme in Money Search Models," CIRJE F-Series CIRJE-F-323, CIRJE, Faculty of Economics, University of Tokyo.
  6. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," Working papers 427, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. Franz, Wolfgang, 1990. "Hysteresis in Economic Relationships: An Overview," Empirical Economics, Springer, vol. 15(2), pages 109-25.
  8. Zhou, Ruilin, 1999. "Individual and Aggregate Real Balances in a Random-Matching Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 1009-38, November.
  9. Lucas, Robert E, Jr, 1980. "Equilibrium in a Pure Currency Economy," Economic Inquiry, Western Economic Association International, vol. 18(2), pages 203-20, April.
  10. Akihiko Matsui & Takashi Shimizu, 2005. "A Theory Of Money And Marketplaces," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(1), pages 35-59, 02.
  11. Mitra, Tapan & Nishimura, Kazuo, 2001. "Discounting and Long-Run Behavior: Global Bifurcation Analysis of a Family of Dynamical Systems," Journal of Economic Theory, Elsevier, vol. 96(1-2), pages 256-293, January.
  12. Franz, Wolfgang, 1990. "Hysteresis in economic relationships: An overview," Discussion Papers, Series II 104, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
  13. 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.
  14. Kazuya Kamiya & Takashi Shimizu, 2013. "Dynamic Auction Markets with Fiat Money," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(2-3), pages 349-378, 03.
  15. Kazuya Kamiya & Takashi Shimizu, 2005. "Real Indeterminacy of Stationary Equilibria in Matching Models with Divisible Money," CIRJE F-Series CIRJE-F-390, CIRJE, Faculty of Economics, University of Tokyo.
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