Decreasing Transaction Costs and Endogenous Fluctuations in a Monetary Model

Antoine Le Riche (1, 2) , Francesco Magris (3)

1 GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille
2 University of Maine
3 LEO - Laboratoire d'Économie d'Orleans [UMR7322]

We study an infinite horizon economy with a representative agent whose utility function includes consumption, real balances and leisure. Real balances enter the utility function pre-multiplied by a parameter reflecting the inverse of the degree of financial market imperfection, i.e. the inverse of the transaction costs justifying the introduction of money in the utility function. When labor is supplied elastically, indeterminacy arises through a transcritical and a flip bifurcation, for degree of financial imperfection arbitrarily close to zero. Similar results are observed when labor is supplied inelastically: indeterminacy occurs through a flip bifurcation for values of the degree of financial imperfection unbounded away from zero. We also study the existence and the multiplicity of the steady states.

Mots clés: bifurcations; indeterminacy; market imperfections; money demand

Domaines: Economies et finances

Antoine Le Riche, Francesco Magris. Decreasing Transaction Costs and Endogenous Fluctuations in a Monetary Model. 2015. ⟨halshs-01199652v1⟩