Temporary bubbles. (Q1411038)

The paper is devoted to the analysis of monetary phenomena. The problem is studied in the form of an overlapping generations model with capital accumulation. It is supposed that the agents live two periods. Budget and cash-in-advance constraints are formulated. Two basic cases are examined: the liquidity constraint is binding (Hahn and Solow's regime named HS) or not for the generation. In the HS-regime the existence of an intertemporal equilibrium under some conditions is proved. In the second case, it is proved that there exists an intertemporal equilibrium and the corresponding dynamics of the variable \(k_t=K_t/N_t,\) where \(K_t\) is the capital stock and \(N_t\) being a number of young agents, monotonically converges towards the golden rule. The question, whether an economy can switch from one regime to another along an equilibrium trajectory, is investigated. It is stated that money can periodically support bubbles, but the bubbles are temporary. Different types of equilibria may exist.