Indeterminacy in a Cash-in-Advance Two-Sector Economy

Stefano Bosi (), Francesco Magris and Alain Venditti
Additional contact information
Stefano Bosi: EPEE, Université d’Evry

No 03-04, Documents de recherche from Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne

Abstract: This paper aims to fill some theoretical gaps existing in literature between monetary indeterminate economies and multisector models. We carry out such a purpose by considering a two-sector infinite horizon economy with a partial cash-in-advance constraint on consumption expenditures. This formulation allows to consider a steady state velocity of money which is strictly greater than one and thus provides a more plausible framework than the standard formulation in which all the consumption purchases are paid cash. We prove that the steady state is bound to be indeterminate when the amplitude of the liquidity constraint is low enough and that a capital intensive investment good or a strongly capital intensive consumption good improve considerably the scope for indeterminacy. As a consequence, we show that without any restriction on the elasticity of intertemporal substitution in consumption, multiple equilibria may occur if the velocity of money is greater than a critical bound which is compatible with empirial estimates.

Keywords: CIA constraint; two-sector models; indeterminacy; sunspot equilibria (search for similar items in EconPapers)
JEL-codes: C61 E32 E41 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2003
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.univ-evry.fr/fileadmin/mediatheque/uev ... s/Epee/wp/03-04R.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eve:wpaper:03-04

Access Statistics for this paper

More papers in Documents de recherche from Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne Contact information at EDIRC.
Bibliographic data for series maintained by Samuel Nosel ().