Cash-in-advance constraints in the diamond overlapping generations model: neutrality and optimality of monetary policies

Crettez, Bertrand

doi:10.1093/oep/51.3.431

Cited by 22 publications

(20 citation statements)

References 11 publications

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“…Therefore, replacing utility from money holdings with utility from consumption of cash goods, we can achieve similar 13 Although Batina and Ihori (2000) studied the effects of interest-income and consumption taxes in an overlapping-generations model version of cash and credit goods as well as money-in-the-utility-function models, their focus is different from ours. For alternative forms of the cash-in-advance constraint in an overlapping-generations setting, see, for example, Crettez et al (1999). results to those obtained by the money-in-the-utility-function approach.…”

Section: Discussionmentioning

confidence: 99%

Optimal Nonlinear Taxation in an Overlapping-Generations Setting with Money as an Asset

Yakita¹

2008

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We investigate the optimal nonlinear wage and interest-income taxes with money as an asset, assuming that there are two types of labor, which are not perfect substitutes in production, and that each type is difficult for the policymaker to observe. It is shown that the optimal interest-income taxation differentiates asset prices facing two types of individuals, and hence that the zero-nominal-interest-rate rule holds for the high-ability type, although not for the low-ability type unless the mimickers' valuation of future consumption is the same as that of the true low-ability individual without separability of the utility function.

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Section: Discussionmentioning

confidence: 99%

Optimal Nonlinear Taxation in an Overlapping-Generations Setting with Money as an Asset

Yakita¹

2008

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“…The inequality (11) puts an upper bound to the credit-share elasticity η 1 (b). It is specific to our model because of the presence of collateral.…”

Section: Householdsmentioning

confidence: 99%

Rational bubbles and macroeconomic fluctuations: The (de-)stabilizing role of monetary policy

Clain-Chamosset-Yvrard

Seegmuller

2015

Mathematical Social Sciences

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We are interested in the occurrence of expectation-driven fluctuations of a rational bubble and the (de-)stabilizing role of monetary policy. Our explanation of fluctuations is based on credit market imperfections. For this purpose, we consider an overlapping generations exchange economy where households realize a portfolio choice between money and bubble. Money is held because of a partial cash-in-advance constraint affected by the bubble. Bubble acts as a store of value, but also as a collateral. Indeed, a higher value of the bubble implies a higher amount of collateral, which, in turn, reduces the need of cash, and thus increases consumption purchased on credit. Under these credit market features, expectation-driven fluctuations and the multiplicity of steady-states occur, in particular for arbitrarily small market distortions. Investing the stabilizing role of monetary policy, we show that when the monetary policy rule depends on expected inflation only, a more active rule stabilizes only if collateral has a large effect on consumption financed on credit. Finally, we enrich this rule by including asset prices. A policy which depends on asset prices can stabilize whatever the effect of collateral and can also rule out the multiplicity of steady states. More generally, this paper emphasizes the * We would like to thank

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“…That is, where p t is the price level at time t and α < 1 is the proportion of p t d t that has to be financed through cash. This specification is due to Hahn and Solow (1995) and has been used extensively in overlapping‐generations models; see, for example, Crettez, Michel, and Wigniolle (1999, 2002) and Michel and Wigniolle (2003, 2005). It may at first appear restrictive in that it does not apply to first‐period consumption expenditures.…”

Section: The Model and Its Laissez‐faire Equilibriummentioning

confidence: 99%

The Friedman Rule in a Model with Endogenous Growth and Cash‐in‐Advance Constraint

Gahvari¹

2012

J of Money Credit Banking

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. et al. (2007), exhibits a positive intergenerational externality which precludes its laissez-fair equilibrium to be optimal even if the government can control the level of physical capital and set it to satisfy the modified golden rule. The main message of the paper is that, as long as the modified golden rule is attained, Friedman rule is optimal. Terms of use: Documents inThe result holds regardless of the ability of the government to internalize the externality and control the level of human capital. Other results include: (i) violation of Friedman rule for a different second-best environment wherein human capital accumulation is controlled but not physical capital accumulation; (ii) existence of a negative relationship between money growth rate and the economy's endogenous growth rate, and (iii) non-uniqueness of Friedman rule.JEL Code: H21, H52.

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Cash-in-advance constraints in the diamond overlapping generations model: neutrality and optimality of monetary policies

Cited by 22 publications

References 11 publications

Optimal Nonlinear Taxation in an Overlapping-Generations Setting with Money as an Asset

Optimal Nonlinear Taxation in an Overlapping-Generations Setting with Money as an Asset

Rational bubbles and macroeconomic fluctuations: The (de-)stabilizing role of monetary policy

The Friedman Rule in a Model with Endogenous Growth and Cash‐in‐Advance Constraint

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