Poverty traps, the money growth rule, and the stage of financial development
AbstractThis paper investigates how monetary policy influences the emergence of local indeterminacy, local bifurcations, and multiple steady states, depending upon the degree of the commitment parameter that defines financial market imperfection, using Diamond's overlapping generations model with credit market frictions. The analytical results will show that poverty traps happen as an inevitable outcome under a wider range of money growth rates, because financial markets are less developed. Put differently, we derive analytically the positive link between financial development and per capita income.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Dynamics and Control.
Volume (Year): 35 (2011)
Issue (Month): 8 (August)
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Web page: http://www.elsevier.com/locate/jedc
Poverty traps Monetary policy Financial development Indivisible investment Multiple steady states Local indeterminacy Neimark-Sacker and saddle-node bifurcations;
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