Indeterminacy with constant money growth rules and income-based liquidity constraints
Stefano Bosi and
Frédéric Dufourt ()
Research in Economics, 2008, vol. 62, issue 2, 57-63
We study the implications of constant money growth rules on the stability properties of the equilibrium, in economies where the agents are subject to a partial cash-in-advance constraint applying simultaneously to consumption and investment purchases. By reference to similar models in which the liquidity constraint applies only to consumption, we show that the inclusion of investment has dramatic, but contrasting, effects on the range of values giving rise to indeterminacy. First, it increases strongly a lower bound on the share of purchases requiring cash, below which the steady state is always indeterminate. Second, it creates a higher bound on this share, above which the steady state is always determinate. In this context, the steady-state value of the velocity of money becomes a crucial parameter for gauging whether constant money growth rules may be stabilizing or destabilizing for the economy.
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
Working Paper: Indeterminacy with constant money growth rules and income-based liquidity constraints (2008)
Working Paper: Indeterminacy with Constant Money Growth Rules and Income-Based Liquidity Constraints (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:reecon:v:62:y:2008:i:2:p:57-63
Access Statistics for this article
Research in Economics is currently edited by Federico Etro
More articles in Research in Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().