Journal Of The Econometric Society

An International Society for the Advancement of Economic
Theory in its Relation to Statistics and Mathematics

Edited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262

Econometrica: Nov, 1991, Volume 59, Issue 6

Endogenous Price Fluctuations in an Optimizing Model of a Monetary Economy<1617:EPFIAO>2.0.CO;2-Z
p. 1617-1631

Kiminori Matsuyama

This paper demonstrates that an optimizing model of a monetary economy can produce perfect foresight equilibria, in which the price level fluctuates forever. Cyclically or chaotically fluctuating equilibria are more likely to exist when the rate of money supply growth is high. Furthermore, the set of equilibrium prices may have a complicated topological structure, which poses a more serious problem concerning the validity of comparative statics method than any sort of indeterminacy previously discussed in the literature.

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