Two-period cycles in a three-period overlapping generations model

We study the properties of two-period monetary cycles in simple pure exchange overlapping generations economies in which the households live for three periods. We demonstrate that these economics can support cycles under a much broader-and, arguably, more plausible-range of assumptions than the analogous two-period economies. We show that economies that fail the well-known Grandmont (Econometrica 53 (1985) 995) condition can have cycles, and that economies that satisfy the condition can fail to have cycles. In addition, we show that economies can have monetary cycles when they do not have conventional monetary steady states, and when aggregate demand for assets is not decreasing in the real return rate at a gross real rate of unity. (C) 2003 Elsevier Science (USA). All rights reserved.