NONLINEAR PRICE SCHEDULES AND MONETARY EQUILIBRIUM

Abstract

A version of the overlapping generations model is used to analyze consumer behavior and the properties of monetary equilibria if agents are faced with a nonlinear rate-of-return schedule on saving. Optimal individual decisions depend on economic parameters in a non-standard way. Unlike money stocks may be crowded out of the economy by the competitive mechanism. In a long run rational expectations equilibrium either real stock prices or the aggregate supply of stocks constitute a free parameter of the model. In the short run, if expectations are inelastic, no endogenous constraints on nominal stock prices exist while nominal goods and real stock prices are restricted to certain subsets of the positive real line.