Seasonal Cycles and Endogenous Business Cycles in a Monetary Economy

The purpose of this paper is to investigate how seasonal fluctuations in preference may change the dynamic stability and make multiple equilibria more likely outcome in a standard monetary economy. In the analysis, we investigate a model of money-in-the-utility function where real money balances held at the beginning of the period induce utility. Unless the utility function has seasonal patterns, the steady state equilibrium is a unique equilibrium unless the degree of risk aversion is incredibly large. However, when the utility function has some seasonal patterns, the dynamic system may have multiple dynamic paths or limit cycles even if the degree of risk aversion takes a reasonable value in most of the seasons. In particular, when the number of seasons is large, there may exist multiple dynamic paths even if the observed money demand is decreasing in interest rates.