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Myopia and monetary equilibria

Author

Listed:
  • Stefano Lovo

    (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique)

  • Heracles M. Polemarchakis

    (Department of Economics - University of Warwick [Coventry])

Abstract

In an infinitely lived, representative individual economy, important properties of competitive equilibria, such as determinacy and the non-existence of monetary equilibria, are not robust to the introduction of myopia. An individual is myopic if, at each date, he plans consumption only for that date and few periods that immediately follow; that is, his planning horizon, n, is finite. Equilibria with myopia can display real indeterminacy and allow for monetary as well as non-monetary steady states; thus, they share some of the features of equilibria in economies of overlapping generation. The equilibrium price dynamics (but not the consumption dynamics) of an exchange economy with extreme myopia, n = 1, are identical to the dynamics of an overlapping generation economy with two-period lives.

Suggested Citation

  • Stefano Lovo & Heracles M. Polemarchakis, 2010. "Myopia and monetary equilibria," Post-Print hal-00585956, HAL.
    • Handle: RePEc:hal:journl:hal-00585956
    DOI: 10.1016/j.jmateco.2010.08.007
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    References listed on IDEAS

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