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Cash-in-Advance Constraints in the Diamond Overlapping Generations Model: Neutrality and Optimality of Monetary Policies

Author

Listed:
  • Crettez, B.
  • Michel, P.
  • Wigniolle, B.

Abstract

This paper is a study of money in overlapping generations models with cash-in-advance constraints a la Champ and Freeman and Hahn and Solow. We first offer a brief review of different features of the cash-in-advance constraint. Then we propose a general formulation. We show that neutrality of money prevails when the ratios of lum-sum monetary transfers and public expenditures to the money supply do not depend on the money growth rate.

Suggested Citation

  • 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).
  • Handle: RePEc:fth:pariem:97.52
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    Cited by:

    1. Michel, P. & Wigniolle, B., 2000. "Temporary Bubbles in an Economy with Under-Accumulation," Papiers d'Economie Mathématique et Applications 2000.91, Université Panthéon-Sorbonne (Paris 1).
    2. Basci, Erdem & Erdogan, Ayse M. & Saglam, Ismail, 2006. "Money, Tobin Effect, and Incerasing Returns," MPRA Paper 1904, University Library of Munich, Germany.
    3. Homburg Stefan, 2015. "Superneutrality of Money under Open Market Operations," Review of Economics, De Gruyter, vol. 66(3), pages 289-302, December.
    4. Firouz Gahvari & Luca Micheletto, 2012. "Monetary Policy and Redistribution: What can or cannot be Neutralized with Mirrleesian Taxes," CESifo Working Paper Series 3711, CESifo Group Munich.
    5. Stefano Bosi, 2005. "Sunspot Bubbles," Documents de recherche 05-25, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
    6. Lu Chia-Hui & Chen Been-Lon & Hsu Mei, 2011. "The Dynamic Relationship between Inflation and Output Growth in a Cash-Constrained Economy," The B.E. Journal of Macroeconomics, De Gruyter, vol. 11(1), pages 1-29, May.
    7. Firouz Gahvari, 2009. "Friedman Rule in a Model with Endogenous Growth and Cash-in-advance Constraint," CESifo Working Paper Series 2708, CESifo Group Munich.
    8. Stefano Bosi & Thomas Seegmuller, 2013. "Rational bubbles and expectation-driven fluctuations," International Journal of Economic Theory, The International Society for Economic Theory, vol. 9(1), pages 69-83, March.
    9. Leopold von Thadden, 2004. "Active monetary policy, passive fiscal policy and the value of pure debt: some further monetarist arithmetic," Money Macro and Finance (MMF) Research Group Conference 2003 108, Money Macro and Finance Research Group.
    10. Clain-Chamosset-Yvrard, Lise & Seegmuller, Thomas, 2015. "Rational bubbles and macroeconomic fluctuations: The (de-)stabilizing role of monetary policy," Mathematical Social Sciences, Elsevier, vol. 75(C), pages 1-15.
    11. Luciano Fanti, 2012. "Fertility and money in an OLG model," Discussion Papers 2012/145, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    12. Yanagihara, Mitsuyoshi & Lu, Chen, 2013. "Cash-in-advance constraint, optimal monetary policy, and human capital accumulation," Research in Economics, Elsevier, vol. 67(3), pages 278-288.
    13. Homburg, Stefan, 2017. "A Study in Monetary Macroeconomics," OUP Catalogue, Oxford University Press, number 9780198807537.
    14. Akira Yakita, 2008. "Optimal Nonlinear Taxation in an Overlapping-Generations Setting with Money as an Asset," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 64(1), pages 19-32, March.
    15. Tarishi Matsuoka, 2011. "Temporary Bubbles and Discount Window Policy," KIER Working Papers 802, Kyoto University, Institute of Economic Research.
    16. Crettez, Bertrand & Michel, Philippe & Wigniolle, Bertrand, 2002. "Seigniorage and public good in an OLG model with cash-in-advance constraints," Research in Economics, Elsevier, vol. 56(4), pages 333-364, December.
    17. Antoine Le Riche & Francesco Magris, 2015. "Equilibrium Dynamics in a Two-Sector OLG Model with Liquidity Constraint," AMSE Working Papers 1536, Aix-Marseille School of Economics, Marseille, France.
    18. von Thadden, Leopold, 2004. "Active monetary policy, passive fiscal policy and the value of public debt: Some further monetarist arithmetic," Journal of Macroeconomics, Elsevier, vol. 26(2), pages 223-251, June.
    19. Michel, Philippe & Wigniolle, Bertrand, 2003. "Temporary bubbles," Journal of Economic Theory, Elsevier, vol. 112(1), pages 173-183, September.

    More about this item

    Keywords

    MONEY ; MONETARY POLICY ; GENERATIONS;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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