### Abstract

We study perfect foresight competitive equilibrium in an overlapping generations model with productive capital and a fixed nominal stock of money. We obtain almost-complete characterizations of (a) the existence of a monetary equilibrium from an arbitrary initial capital stock, and (b) the existence of an efficient monetary equilibrium from an arbitrary initial capital stock. When the initial capital stock is no larger than the golden rule stock, the necessary and sufficient condition for both (a) and (b) is the dynamic inefficiency (in the sense of Malinvaud) of the autarkic (or nonmonetary) equilibrium from the same initial stock. However, this condition, though necessary, is not sufficient for the existence of a monetary equilibrium when the initial stock exceeds the golden rule stock (and still more conditions are needed for an efficient monetary equilibrium to exist). We provide characterizations for these cases, and as corollaries obtain examples in which (a) the nonmonetary equilibrium is inefficient but no monetary equilibrium exists, and (b) monetary equilibria exist but no efficient monetary equilibrium does.

Original language | English (US) |
---|---|

Pages (from-to) | 697-716 |

Number of pages | 20 |

Journal | Economic Theory |

Volume | 3 |

Issue number | 4 |

DOIs | |

State | Published - Dec 1993 |

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### ASJC Scopus subject areas

- Economics and Econometrics

### Cite this

*Economic Theory*,

*3*(4), 697-716. https://doi.org/10.1007/BF01210266

**Monetary equilibrium in an overlapping generations model with productive capital.** / Bose, Amitava; Ray, Debraj.

Research output: Contribution to journal › Article

*Economic Theory*, vol. 3, no. 4, pp. 697-716. https://doi.org/10.1007/BF01210266

}

TY - JOUR

T1 - Monetary equilibrium in an overlapping generations model with productive capital

AU - Bose, Amitava

AU - Ray, Debraj

PY - 1993/12

Y1 - 1993/12

N2 - We study perfect foresight competitive equilibrium in an overlapping generations model with productive capital and a fixed nominal stock of money. We obtain almost-complete characterizations of (a) the existence of a monetary equilibrium from an arbitrary initial capital stock, and (b) the existence of an efficient monetary equilibrium from an arbitrary initial capital stock. When the initial capital stock is no larger than the golden rule stock, the necessary and sufficient condition for both (a) and (b) is the dynamic inefficiency (in the sense of Malinvaud) of the autarkic (or nonmonetary) equilibrium from the same initial stock. However, this condition, though necessary, is not sufficient for the existence of a monetary equilibrium when the initial stock exceeds the golden rule stock (and still more conditions are needed for an efficient monetary equilibrium to exist). We provide characterizations for these cases, and as corollaries obtain examples in which (a) the nonmonetary equilibrium is inefficient but no monetary equilibrium exists, and (b) monetary equilibria exist but no efficient monetary equilibrium does.

AB - We study perfect foresight competitive equilibrium in an overlapping generations model with productive capital and a fixed nominal stock of money. We obtain almost-complete characterizations of (a) the existence of a monetary equilibrium from an arbitrary initial capital stock, and (b) the existence of an efficient monetary equilibrium from an arbitrary initial capital stock. When the initial capital stock is no larger than the golden rule stock, the necessary and sufficient condition for both (a) and (b) is the dynamic inefficiency (in the sense of Malinvaud) of the autarkic (or nonmonetary) equilibrium from the same initial stock. However, this condition, though necessary, is not sufficient for the existence of a monetary equilibrium when the initial stock exceeds the golden rule stock (and still more conditions are needed for an efficient monetary equilibrium to exist). We provide characterizations for these cases, and as corollaries obtain examples in which (a) the nonmonetary equilibrium is inefficient but no monetary equilibrium exists, and (b) monetary equilibria exist but no efficient monetary equilibrium does.

UR - http://www.scopus.com/inward/record.url?scp=34250079536&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=34250079536&partnerID=8YFLogxK

U2 - 10.1007/BF01210266

DO - 10.1007/BF01210266

M3 - Article

AN - SCOPUS:34250079536

VL - 3

SP - 697

EP - 716

JO - Economic Theory

JF - Economic Theory

SN - 0938-2259

IS - 4

ER -