Debt, liquidity and dynamics

Abstract

Money, which provides liquidity, is distinct from debt. The introduction of a bank that issues money in exchange for debt and pPolemarchakisays out its profit as dividend to shareholders modifies the model of overlapping generations. The set of equilibrium paths, their dynamic properties, as well as the scope and effectiveness of monetary policy are significantly altered: though low rates of interest are associated with superior steady state allocations, stability of the steady state may require a nominal rate of interest above a certain minimum: without production, a decrease in the nominal rate of interest may result in explosive behavior or convergence to an endogenous cycle, while in an economy with production, an increase in the nominal rate of interest may lead to indeterminacy and fluctuations. Copyright Springer-Verlag Berlin/Heidelberg 2006Overlapping generations, Money, Liquidity constraints, Debt, Dynamics.,

Asset bubbles and borrowing constraints

“…We need extra government policies such as a pay-as-you-go social security system. Second, in our setting, if we impose cash-in-advance constraints on our economy in such a manner as Hahn and Solow (1995), Michel and Wigniolle (2003), and Rochon and Polemarchakis (2006), or if we assume money in the utility function like Geanakoplos and Polemarchakis (1986), we can study the effects of a monetary policy on economic growth, taking into account the liquidity demand. These investigations are left for future research.…”

Balanced cycles in an OLG model with a continuum of finitely-lived individuals

“…Sec- 1 The pioneer OLG model of this kind is due to Cass and Yaari [4]. 2 Note that this issue is usually debated in discrete time environment: see notably Aiyagari [1] and Ghiglino and Tvede [6] in a framework with many generations and [8], [7] and [9] in models with two generations. …”

Heterogeneity, monetary policy, Mirrleesian taxes, and the Friedman rule

“…41 One is the e¤ects on the IC constraint, represented by the -terms, and the other is public budget e¤ects, represented by the -terms. 42 In particular, the -term in (32) shows that a marginal increase in , coupled with an o¤setting change in the nonlinear income tax schedule aimed at leaving unchanged the utility of low-skilled agents, will adversely a¤ect the utility of a mimicker, and therefore weaken the IC constraint, when d h`> d`. Instead, the -term in (33) shows that a marginal increase in , coupled with an o¤setting change in the nonlinear income tax schedule aimed at leaving unchanged the utility of low-skilled agents, will make a mimicker worse o¤, and therefore weaken the IC constraint, when h`dh`> `d`.…”