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Endogenous Price Fluctuations in an Optimizing Model of Monetary Economy


  • Kiminori Matsuyama


This paper demonstrates that an optimizing model of a monetary economy can produce perfect foresight equilibria in which the price level fluctuates forever. Cyclically or chaotically fluctuating equilibria are more likely to exist when the rate of money supply growth is high. Furthermore, the set of equilibrium prices may have a complicated topological structure, which poses a more serious problem concerning the validity of comparative statics method than any sort of indeterminacy previously discussed in the literature. Copyright 1991 by The Econometric Society.
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  • Kiminori Matsuyama, 1988. "Endogenous Price Fluctuations in an Optimizing Model of Monetary Economy," Discussion Papers 825, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  • Handle: RePEc:nwu:cmsems:825

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    References listed on IDEAS

    1. Fischer, Stanley, 1979. "Capital Accumulation on the Transition Path in a Monetary Optimizing Model," Econometrica, Econometric Society, vol. 47(6), pages 1433-1439, November.
    2. Kehoe, Timothy J & Levine, David K, 1985. "Comparative Statics and Perfect Foresight in Infinite Horizon Economies," Econometrica, Econometric Society, vol. 53(2), pages 433-453, March.
    3. Obstfeld, Maurice, 1984. "Multiple Stable Equilibria in an Optimizing Perfect-Foresight Model," Econometrica, Econometric Society, vol. 52(1), pages 223-228, January.
    4. Maurice Obstfeld, 1985. "The Capital Inflows Problem Revisited: A Stylized Model of Southern Cone Disinflation," Review of Economic Studies, Oxford University Press, vol. 52(4), pages 605-625.
    5. Brock, William A., 1975. "A simple perfect foresight monetary model," Journal of Monetary Economics, Elsevier, vol. 1(2), pages 133-150, April.
    6. Grandmont, Jean-Michel, 1985. "On Endogenous Competitive Business Cycles," Econometrica, Econometric Society, vol. 53(5), pages 995-1045, September.
    7. Peck, James, 1987. "Non-connectedness of the set of equilibrium money prices: The overlapping-generations economy," Journal of Economic Theory, Elsevier, vol. 43(2), pages 355-363, December.
    8. Matsuyama, Kiminori, 1991. "Endogenous Price Fluctuations in an Optimizing Model of a Monetary Economy," Econometrica, Econometric Society, vol. 59(6), pages 1617-1631, November.
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