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Money, Wealth and Overlapping Generations

  • Aikman, David Llewelyn

    (Bank of England)

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.

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Paper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2003 with number 2.

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Date of creation: 04 Jun 2003
Date of revision:
Handle: RePEc:ecj:ac2003:2
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