The Real Value of Money under Endogenous Beliefs

Graziella Bertocchi and Yong Wang ()

No 1992006, LIDAM Discussion Papers IRES from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: We study an overlapping generations model where the probability that money can lose its value is an endogenous function of the level 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. Furthermore, steady states can be ranked by the degree of confidence, with more inefficiency being associated with less confidence. It is only under restrictive assumptions that the Golden Rule monetary steady state, which is associated with a deterministic bubble and full confidence in the value of money, constitutes a steady state for the system ; in addition, under gross substitutability, this steady would be always unstable.

Pages: 20
Date: 1991-12-01
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Journal Article: The Real Value of Money under Endogenous Beliefs (1995)
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