Cash-in-advance constraints, bubbles and monetary policy

Philippe Michel and Bertrand Wigniolle

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: In this paper, we study the equilibrium dynamics of an overlapping generations model with capital, money and cash-in-advance constraints. At each period, the economy can experience two different regimes: either the cash-inadvance constraint is binding and money is a dominated asset, or the constraint is strictly satisfied and money has the same return as capital. When the second regime occurs, we say that the economy experiences a temporary bubble. We show the existence of temporary bubbles, and we prove that cyclical equilibria may exist. In these equilibria, the economy experiences some periods without bubbles and some periods with bubbles. We also show that monetary creation can be used in order to eliminate temporary bubbles.

Keywords: overlapping generations model; bubbles; cash-in-advance constraint; monetary policy (search for similar items in EconPapers)
Date: 2005
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00268861
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Citations: View citations in EconPapers (17)

Published in Macroeconomic Dynamics, 2005, 9 (1), pp.28-56. ⟨10.1017/S1365100505040113⟩

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Related works:
Journal Article: CASH-IN-ADVANCE CONSTRAINTS, BUBBLES, AND MONETARY POLICY (2005)
Working Paper: Cash-in-advance constraints, bubbles and monetary policy (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:halshs-00268861

DOI: 10.1017/S1365100505040113

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