Cash-in-advance constraints, bubbles and monetary policy
In this paper, we study the equilibrium dynamics of an overlapping generations model with capital, money and cash-in-advance constraints. At each period, the economy can experience two diﬀerent regimes: either the cash-inadvance constraint is binding and money is a dominated asset, or the constraint is strictly satisfied and money has the same return as capital. When the second regime occurs, we say that the economy experiences a temporary bubble. We show the existence of temporary bubbles, and we prove that cyclical equilibria may exist. In these equilibria, the economy experiences some periods without bubbles and some periods with bubbles. We also show that monetary creation can be used in order to eliminate temporary bubbles.
|Date of creation:||2005|
|Date of revision:|
|Publication status:||Published in Macroeconomic Dynamics, Cambridge University Press (CUP), 2005, 9 (1), pp.28-56. <10.1017/S1365100505040113>|
|Note:||View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00268861|
|Contact details of provider:|| Web page: https://hal.archives-ouvertes.fr/|
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.:
- Tirole, Jean, 1985. "Asset Bubbles and Overlapping Generations," Econometrica, Econometric Society, vol. 53(6), pages 1499-1528, November.
- Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
- Michel, Philippe & Wigniolle, Bertrand, 2003. "Temporary bubbles," Journal of Economic Theory, Elsevier, vol. 112(1), pages 173-183, September.
- Pere Gomis-Porqueras, 2000. "Money, banks and endogenous volatility," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 15(3), pages 735-745.
- Stacey L. Schreft & Bruce D. Smith, 1995.
"The effects of open market operations in a model of intermediation and growth,"
562, Federal Reserve Bank of Minneapolis.
- Stacey L. Schreft & Bruce D. Smith, 1998. "The Effects of Open Market Operations in a Model of Intermediation and Growth," Review of Economic Studies, Oxford University Press, vol. 65(3), pages 519-550.
- Stacey L. Schreft & Bruce D. Smith, 1994. "The effects of open market operations in a model of intermediation and growth," Working Paper 94-10, Federal Reserve Bank of Richmond.
- Stacey L. Schreft & Bruce D. Smith, 1997. "The effects of open market operations in a model of intermediation and growth," Research Working Paper 97-03, Federal Reserve Bank of Kansas City.
- Elisabeth Huybens & Bruce D. Smith, 1996.
"Financial Market Frictions, Monetary Policy and Capital Accumulation in a Small Open Economy,"
9608, Centro de Investigacion Economica, ITAM.
- Huybens, Elisabeth & Smith, Bruce D., 1998. "Financial Market Frictions, Monetary Policy, and Capital Accumulation in a Small Open Economy," Journal of Economic Theory, Elsevier, vol. 81(2), pages 353-400, August.
- Frank Hahn & Robert Solow, 1997. "A Critical Essay on Modern Macroeconomic Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 026258154x.
- Bruce D. Smith & John H. Boyd, 1998. "Capital market imperfections in a monetary growth model," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 11(2), pages 241-273.
When requesting a correction, please mention this item's handle: RePEc:hal:cesptp:halshs-00268861. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD)
If references are entirely missing, you can add them using this form.