Optimal Growth and Disinflation under Incomplete Credit Markets
AbstractThis paper shows that when money is necessary to consume but not to invest a gradual reduction of inflation has a positive effect on output, growth or both. If there is an externality à la Romer, a gradual and permanent disinflation could be optimal from a social point of view. In that case, the consistent monetary policy would be to reduce the growth of the nominal quantity of money also gradually.
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