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Credit Cycles in a OLG Economy with Money and Bequest

Author

Listed:
  • Anna Agliari

    (Catholic University of Piacenza, Italy)

  • Tiziana Assenza

    (Catholic University of Milan, Italy)

  • Domenico Delli Gatti

    (Catholic University of Milan, Italy)

  • Emiliano Santoro

    (Cambridge University, UK)

Abstract
In this paper we develop an overlapping generation version of Kiyotaki and Moore's (hereafter KM) model of the "Credit Cycle". In each period the population consists of two classes of agents: a group of financially constrained agents ("farmers") and one of unconstrained agents ("gatherers"). Each class in turn consists of young and old agents.Each class of agents uses different technologies to produce the same perishable good ("fruit") by means of labour and "land". Land is a durable asset which plays the role not only of an input for production processes but also of collateralizable wealth to secure lenders from the risk of borrowers' default. In a context of intergenerational altruism, old agents leave a bequest to their offspring. Money enters the picture as a means of payment and a reserve of value because it enables to access consumption in old age. In the original paper in which people are infinitely lived (an money as such is absent), KM study the fluctuations following a technological shock. In the OLG version of the model, self susteained oscillations arise naturally. We study the complex dynamics of the allocation of land to farmers and gatherers -which determines aggregate output- and of the price of the durable asset. The next step is the analysis of the conditions under which money is or is not superneutral.

Suggested Citation

  • Anna Agliari & Tiziana Assenza & Domenico Delli Gatti & Emiliano Santoro, 2006. "Credit Cycles in a OLG Economy with Money and Bequest," Computing in Economics and Finance 2006 369, Society for Computational Economics.
    • Handle: RePEc:sce:scecfa:369
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    References listed on IDEAS

    as
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    2. Matteo Iacoviello, 2005. "House Prices, Borrowing Constraints, and Monetary Policy in the Business Cycle," American Economic Review, American Economic Association, vol. 95(3), pages 739-764, June.
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    More about this item

    Keywords

    Overlapping Generations; Financial Constraints; Credit Cycles;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

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