Dynamics, Cycles and Sunspot Equilibria in 'Genuinely Dynamic Fundamentally Disaggregative' Models of Money

28 Pages Posted: 28 Oct 2002 Last revised: 18 Nov 2007

See all articles by Ricardo Lagos

Ricardo Lagos

New York University (NYU) - Department of Economics

Randall Wright

University of Wisconsin - Madison - Department of Finance, Investment and Banking; Federal Reserve Banks - Federal Reserve Bank of Minneapolis

Date Written: September 24, 2002

Abstract

This paper pursues a line of Cass and Shell, who advocate monetary models that are genuinely dynamic and fundamentally disaggregative and incorporate diversity among households and variety among commodities. Recent search-theoretic models fit this description. We show that, like overlapping generations models, search models generate interesting dynamic equilibria, including cycles, chaos, and sunspot equilibria. This helps us understand how alternative models are related, and lends support to the notion that endogenous dynamics and uncertainty matter, perhaps especially in monetary economies. We also suggest such equilibria in search models may be more empirically relevant than in some other models.

Suggested Citation

Lagos, Ricardo and Wright, Randall D., Dynamics, Cycles and Sunspot Equilibria in 'Genuinely Dynamic Fundamentally Disaggregative' Models of Money (September 24, 2002). PIER Working Paper No. 02-042; FRB of Cleveland Working Paper No. 02-10. Available at SSRN: https://ssrn.com/abstract=341680 or http://dx.doi.org/10.2139/ssrn.341680

Ricardo Lagos

New York University (NYU) - Department of Economics ( email )

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Randall D. Wright (Contact Author)

University of Wisconsin - Madison - Department of Finance, Investment and Banking ( email )

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United States
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Federal Reserve Banks - Federal Reserve Bank of Minneapolis

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