Temporary bubbles |
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Authors: | Philippe Michel Bertrand Wigniolle |
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Institution: | a Université de la Méditerranée II, I.U.F. and GREQAM, Centre de la Vieille Charité, 2 rue de la Charité, 13002 Marseille, France b EUREQua, Université de Paris I, Maison des Sciences Economiques, 106-112, boulevard de l'hôpital, 75647 Paris, Cedex 13, France c L.I.B.R.E., Université de Franche-Comté, Faculté de Droit, avenue de l'observatoire, 25030, Besançon Cedex, France |
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Abstract: | This article studies the dynamics of an overlapping generations model with capital, money and cash-in-advance constraints. The economy can exhibit two different regimes. In the first one, the cash-in-advance constraint is binding and money is a dominated asset. In the second one, the constraint is strictly satisfied and money has the same return as capital. When the second regime holds on a finite number of periods, we say that the economy experiences a temporary bubble. We prove that temporary bubbles can exist in an economy, which would experience under-accumulation without money. We also show that cyclical bubbles may occur. |
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Keywords: | D9 E4 G1 |
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