Self-fulfilling traps with money as a medium of exchange
نویسنده
چکیده
A model of an economy with random matching and monetary exchanges is shown to have two equilibrium regimes. In the first, agents find an opportunity for a sale in each period and there is full-employment. In the second, agents attempt to increase their balances because of a lack of opportunities for sales which is in turn induced by the saving for higher money balances, and there is unemployment. In any period of the high regime, self-fulfilling expectations can plunge the economy into the low equilibrium but a recovery from the low to the high equilibrium may not be possible.
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