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Dynamics in a transactions-based monetary growth model

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  • Jha, Sailesh K.
  • Wang, Ping
  • Yip, Chong K.

Abstract

This paper examines the dynamic properties of a monetary endogenous growth model in which money is introduced into the system via a transactions-cost technology. A monetary equilibrium that either satisfires the Friedman rule of the optimum quantity of money or accommodates the zero-inflation-rate policy is dynamically unstable. In a Cagan-like hyperinflationary environment, two possibilities arise: the monetary equilibrium may be unstable or exhibit dynamic indeterminacy in which a variety of equilibrium outcomes emerge in transition. The rate of monetary expansion, the relative magnitudes of the intertemporal elasticity of substitution and the production technological parameter are crucial for determining the stability property of the model. We characterize completely the transitional dynamics in the saddle-path case and generalize the basic model to allow for a convex production technology and an endogenous labor-leisure tradeoff to examine the robustness of the main findings.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 26 (2002)
Issue (Month): 4 (April)
Pages: 611-635

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Handle: RePEc:eee:dyncon:v:26:y:2002:i:4:p:611-635

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References

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Citations

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Cited by:
  1. Itaya, Jun-Ichi & Mino, Kazuo, 2007. "Technology, Preference Structure, And The Growth Effect Of Money Supply," Macroeconomic Dynamics, Cambridge University Press, vol. 11(05), pages 589-612, November.
  2. Suen, Ming-Hon & Yip, Chong K., 2005. "Superneutrality, indeterminacy and endogenous growth," Journal of Macroeconomics, Elsevier, vol. 27(4), pages 579-595, December.
  3. Willem Buiter & Anne Sibert, 2004. "Deflationary Bubbles," Birkbeck Working Papers in Economics and Finance 0409, Birkbeck, Department of Economics, Mathematics & Statistics.
  4. Varvarigos, Dimitrios, 2008. "Inflation, variability, and the evolution of human capital in a model with transactions costs," Economics Letters, Elsevier, vol. 98(3), pages 320-326, March.
  5. Shu-Hua Chen, 2012. "On the Growth and Stability Effects of Habit Formation and Durability in Consumption," Annals of Economics and Finance, Society for AEF, vol. 13(2), pages 283-298, November.
  6. Chu, Angus C. & Lai, Ching-Chong & Liao, Chih-Hsing, 2010. "A tale of two growth engines: The interactive effects of monetary policy and intellectual property rights," MPRA Paper 30105, University Library of Munich, Germany, revised Apr 2011.
  7. Seiya, Fujisaki & Kazuo, Mino, 2010. "Growth and Distributional Effects of Inflation with Progressive Taxation," MPRA Paper 26113, University Library of Munich, Germany.
  8. Dimitrios Varvarigos, 2006. "Inflation, Variability, and the Evolution of Human Capital in a Model with Transactions Costs," Discussion Paper Series 2006_16, Department of Economics, Loughborough University, revised Jul 2006.
  9. Seiya Fujisaki & Kazuo Mino, 2009. "Long-Run Impacts of Inflation Tax in the Presence of Multiple Capital Goods," Economics Bulletin, AccessEcon, vol. 29(3), pages 1644-1652.
  10. Burkhard Heer & Alfred Maussner, 2011. "The Cash-In-Advance Constraint in Monetary Growth Models," CESifo Working Paper Series 3647, CESifo Group Munich.
  11. Luigi Bonatti, 2003. "'Soft' growth and the role of monetary policy in selecting the long-run equilibrium path," Working Papers 0306, University of Bergamo, Department of Economics.
  12. Seiya Fujisaki & Kazuo Mino, 2010. "Long-Run Impacts of Inflation Tax with Endogenous Capital Depreciation," Economics Bulletin, AccessEcon, vol. 30(1), pages 808-816.

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