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Money, Wealth and Overlapping Generations

Author

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  • Aikman, David Llewelyn

    (Bank of England)

Abstract

In this paper, we use Weil's (1989) overlapping dynasties framework to analyse a microfounded version of the real balance effect envisaged by Pigou (1944). The effect is absent from representative agent models as then net monetary wealth is always zero. With population growth, however, net monetary wealth is positive and a real balance effect emerges much as Pigou predicted. Our main conclusion, however, is a Keynesian one: rather than eliminating the possibility of a trap, the framework generating the real balance effect if anything makes a trap more likely due to the heightened constraints it imposes on the monetary authority.

Suggested Citation

  • Aikman, David Llewelyn, 2003. "Money, Wealth and Overlapping Generations," Royal Economic Society Annual Conference 2003 2, Royal Economic Society.
    • Handle: RePEc:ecj:ac2003:2
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    More about this item

    Keywords

    liquidity trap; real balance effect; Pigou effect; monetary policy; Japan;
    All these keywords.

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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