Intertemporal substitution and smoothness of consumption
We prove the general existence of steady states with positive consumption in an N goods and fiat money version of the Kiyotaki-Wright (“On money as a median of exchange,” Journal of Political Economy 1989, 97 (4), 927–54) model by admitting mixed strategies. We also show that there always exists a steady state in which everyone accepts a least costly-to-store object. In particular, if fiat money is one such object, then there always exists a monetary steady state. We also establish some other properties of steady states and comment on the relationship between steady states and (incentive) feasible allocations.
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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lawrence J. Christiano & Martin Eichenbaum & David A. Marshall, 1990.
"The permanent income hypothesis revisited,"
129, Federal Reserve Bank of Minneapolis.
- Christiano, Lawrence J, 1987.
"Is Consumption Insufficiently Sensitive to Innovations in Income?,"
American Economic Review,
American Economic Association, vol. 77(2), pages 337-341, May.
- Lawrence J. Christiano, 1987. "Is consumption insufficiently sensitive to innovations in income?," Staff Report 106, Federal Reserve Bank of Minneapolis.
- Hansen, Gary D., 1985.
"Indivisible labor and the business cycle,"
Journal of Monetary Economics,
Elsevier, vol. 16(3), pages 309-327, November.
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