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Decreasing Transaction Costs and Endogenous Fluctuations in a Monetary Model

Author

Listed:
  • Antoine Le Riche

    (GAINS, Aix-Marseille University (Aix-Marseille School of Economics), GREQAM, CNRS & EHESS)

  • Francesco Magris

    (LEO, University “François Rabelais” of Tours)

Abstract

We study an infinite horizon economy with a representative agent whose utility function includes consumption, real balances and leisure. Real balances enter the utility function pre-multiplied by a parameter reflecting the inverse of the degree of financial market imperfection, i.e. the inverse of the transaction costs justifying the introduction of money in the utility function. When labor is supplied elastically, indeterminacy arises through a transcritical and a flip bifurcation, for degree of financial imperfection arbitrarily close to zero. Similar results are observed when labor is supplied inelastically: indeterminacy occurs through a flip bifurcation for values of the degree of financial imperfection unbounded away from zero. We also study the existence and the multiplicity of the steady states.

Suggested Citation

  • Antoine Le Riche & Francesco Magris, 2015. "Decreasing Transaction Costs and Endogenous Fluctuations in a Monetary Model," AMSE Working Papers 1535, Aix-Marseille School of Economics, France.
    • Handle: RePEc:aim:wpaimx:1535
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    bifurcations; Indeterminacy; market imperfections; money demand;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

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