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Resurrecting equilibria through cycles in an overlapping generations model of money

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  • Barnett, Richard C.
  • Bhattacharya, Joydeep
  • Bunzel, Helle

Abstract

Momentary equilibria are defined as points that satisfy agents’ optimality conditions and market clearing at any date. However, some dynamic sequences commencing from such points may not be considered valid equilibria because they asymptotically violate some economic restriction of the model. This paper studies a pure-exchange monetary overlapping generations economy in which young and old agents face exogenous minimum consumption requirements, and money is the only asset. The presence of the minimum consumption requirement on the old is shown to produce multiperiodic monetary equilibria in which real balances cycle forever between “momentary” equilibrium points (those which generate monetary sequences that potentially violate equilibrium strictures asymptotically). The novelty is to show that segments of the intergenerational offer curve that would have been deemed dynamically invalid can, in fact, be used to produce asymptotically valid cyclical paths. Indeed, a limit cycle can bestow dynamic validity on momentary equilibrium points that had erstwhile been classified as dynamically invalid.

Suggested Citation

  • Barnett, Richard C. & Bhattacharya, Joydeep & Bunzel, Helle, 2010. "Resurrecting equilibria through cycles in an overlapping generations model of money," ISU General Staff Papers 201001010800001106, Iowa State University, Department of Economics.
  • Handle: RePEc:isu:genstf:201001010800001106
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    References listed on IDEAS

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    1. Grandmont, Jean-Michel, 1985. "On Endogenous Competitive Business Cycles," Econometrica, Econometric Society, vol. 53(5), pages 995-1045, September.
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    Cited by:

    1. Richard Barnett & Joydeep Bhattacharya & Helle Bunzel, 2013. "Deviant generations, Ricardian equivalence, and growth cycles," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 52(1), pages 367-396, January.
    2. Rangan Gupta & Lardo Stander, 2014. "Endogenous Fluctuations in an Endogenous Growth Model with Inflation Targeting," Working Papers 201432, University of Pretoria, Department of Economics.
    3. repec:ipg:wpaper:2014-461 is not listed on IDEAS

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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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