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Temporary Bubbles in an Economy with Under-Accumulation

  • Michel, P.
  • Wigniolle, B.

This paper studies the equilibrium dynamics of an overlapping generations model with capital, money and cash-in-advance constraints. At each date the economy can experience two different regimes. In the first one the cash-in-advance constraint is binding and money is a dominated asset. In the second one, the constraint is strictly satisfied and money has the same return as capital. When the second regime holds on some finite interval, we say that the economy experiences a temporary bubble. We prove that temporary bubbles can exist in an economy which would experience under accumulation without money.

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Paper provided by Université Panthéon-Sorbonne (Paris 1) in its series Papiers d'Economie Mathématique et Applications with number 2000.91.

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Length: 33 pages
Date of creation: 2000
Date of revision:
Handle: RePEc:fth:pariem:2000.91
Contact details of provider: Postal: France; Universite de Paris I - Pantheon- Sorbonne, 12 Place de Pantheon-75005 Paris, France
Phone: + 33 44 07 81 00
Fax: + 33 1 44 07 83 01
Web page: http://cermsem.univ-paris1.fr/

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  1. Frank Hahn & Robert Solow, 1997. "A Critical Essay on Modern Macroeconomic Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 026258154x, June.
  2. Champ,Bruce & Freeman,Scott & Haslag,Joseph, 2011. "Modeling Monetary Economies," Cambridge Books, Cambridge University Press, number 9780521177009.
  3. Champ, Bruce & Freeman, Scott, 1990. "Money, Output, and the Nominal National Debt," American Economic Review, American Economic Association, vol. 80(3), pages 390-97, June.
  4. Crettez, B. & Michel, P. & Wigniolle, B., 1997. "Cash-in-Advance Constraints in the Diamond Overlapping Generations Model: Neutrality and Optimality of Monetary Policies," Papiers d'Economie Mathématique et Applications 97.52, Université Panthéon-Sorbonne (Paris 1).
  5. Gahvari, Firouz, 1988. "Lump-sum taxation and the superneutrality and optimum quantity of money in life cycle growth models," Journal of Public Economics, Elsevier, vol. 36(3), pages 339-367, August.
  6. Tirole, Jean, 1985. "Asset Bubbles and Overlapping Generations," Econometrica, Econometric Society, vol. 53(6), pages 1499-1528, November.
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