The Real Value of Money under Endogenous Beliefs
|Journal / Publication||Journal of Economic Theory|
|Publication status||Published - Oct 1995|
|Link to Scopus||https://www.scopus.com/record/display.uri?eid=2-s2.0-0043106896&origin=recordpage|
We study an overlapping generations model where the level of confidence in money evolves endogenously as a function of aggregate real money balances. The economy can display multiple stationary equilibria where the aggregate bubble on money is stochastic and the level of confidence is partial. Steady states can be ranked by the degree of confidence, with more inefficiency being associated with less confidence. It is only under certain restrictions that the Golden Rule constitutes a steady state for the system. Autarky becomes unstable and complex dynamics such as cycles and chaos can emerge even under gross substitutability. Journal of Economic Literature Classification Numbers: D50, E10, E40. © 1995 Academic Press. All rights reserved.