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Endogenous Price Fluctuations in an Optimizing Model of Monetary Economy

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  • Kiminori Matsuyama

Abstract

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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