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Decreasing Transaction Costs and Endogenous Fluctuations in a Monetary Model

Author

Listed:
  • Antoine Le Riche

    () (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

  • Francesco Magris

    (LEO - Laboratoire d'Économie d'Orleans - CNRS - Centre National de la Recherche Scientifique - Université de Tours - UO - Université d'Orléans, CAC-IXXI, Complex Systems Institute)

Abstract

We study an infinite horizon economy with a representative agent whose utility function includes consumption, real balances and leisure. Real balances enter the utility function pre-multiplied by a parameter reflecting the inverse of the degree of financial market imperfection, i.e. the inverse of the transaction costs justifying a positively valued fiat money. Indeterminacy arises both through a transcritical and a flip bifurcation: somewhat paradoxically, the amplitude of the indeterminacy region improves as soon as the degree of market imperfection is set lower and lower. Such results are robust with respect to the choice for the elasticity of the labor supply, both when the latter is set close to zero and to infinite. We also provide conditions for the existence, uniqueness and multiplicity of the steady states and, finally, we asses the impact of the degree of market imperfection on the occurrence of such phenomena.

Suggested Citation

  • Antoine Le Riche & Francesco Magris, 2016. "Decreasing Transaction Costs and Endogenous Fluctuations in a Monetary Model," Working Papers halshs-01199652, HAL.
  • Handle: RePEc:hal:wpaper:halshs-01199652
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-01199652v2
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    bifurcations; indeterminacy; money demand; market imperfections;

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

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