Debt, liquidity and dynamics

Heracles M. Polemarchakis and Céline Rochon
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Heracles M. Polemarchakis: Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium
Céline Rochon: Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium

No 1999034, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: Money, which provides liquidity services, is distinct from debt. The introduction of a bank that issues money in exchange for debt and pays 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: (1) there is a continuum of pareto comparable steady state paths, indexed by the nominal rate of interest; (2) monetary policy, which is effective, can set, alternatively, the nominal rate of interest, the circulation of real balances or the rate of inflation; and (3) though low rates of interest are associated with superior steady state allocations, they may account for unstable steady states or stable endogenous cycles.

Keywords: money; liquidity; debt; overlapping generations; dynamics (search for similar items in EconPapers)
JEL-codes: E30 E32 E50 E52 (search for similar items in EconPapers)
Date: 1999-06-01
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Debt, liquidity and dynamics (2006)
Working Paper: Debt, Liquidity and Dynamics (2000)
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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:1999034

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