A stability analysis of a multiple denomination equilibrium

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Abstract

We consider existence and stability in a simple version of Lee et al. (2005). For a sufficiently large discount factor, a steady state of full ? support wealth distribution and pure strategy exists, whereas for an intermediate discount factor, a steady state of mixed strategy exists. Both steady states are locally stable and determinate. All denominations are circulated in the mixed-strategy steady state, whereas larger denominations are not held in the other steady state. We also show that nonfull-support steady states exist, and are stable and indeterminate. This finding is in sharp contrast to that of Huang, and Igarashi (2014), which show instability of nonfull-support steady states in Lee et al. (2005).

Original languageEnglish
Pages (from-to)389-414
Number of pages26
JournalSeoul Journal of Economics
Volume28
Issue number4
Publication statusPublished - 2015

Keywords

  • Carrying cost
  • Denomination
  • Determinacy
  • Instability
  • Random matching model

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)

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