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Money

In: Public Finance in an Overlapping Generations Economy

Author

Listed:
  • Toshihiro Ihori

    (University of Tokyo)

Abstract

This chapter introduces money into the basic model. There are two views of money. In the ‘bubbly’ view, money is a pure store of value. This view implies that price of money grows at the real rate of interest and that money is held entirely for speculation. In the ‘fundamentalist’ view money is held to finance transactions. Only the fundamentalist view can explain the rate of return dominance of other assets over money. Samuelson (1958) first introduced money into the overlapping generations model. Section 2 summarizes his framework without capital accumulation1 and explains the bubbly view of money. We also introduce money into the Diamond model with capital accumulation and explain the fundamentalist view of money by examining the dynamic properties of the economy as well as its steady state nature.

Suggested Citation

  • Toshihiro Ihori, 1996. "Money," Palgrave Macmillan Books, in: Public Finance in an Overlapping Generations Economy, chapter 7, pages 144-175, Palgrave Macmillan.
  • Handle: RePEc:pal:palchp:978-0-230-38990-8_7
    DOI: 10.1057/9780230389908_7
    as

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