Growth, inflation, and economic policy in a stochastic cash-in-advance economy
AbstractWe develop a continuous-time stochastic growth model with recursive preferences, money and public debt. In equilibrium growth and inflation follow geometric Brownian motions, with parameters determined by solving a system of nonlinear equations. Permanent changes in government expenditures and taxes have both real and nominal effects producing often reverse Mundell-Tobin effects. Superneutrality holds when money supply changes are caused by open market operations, irrespective of the primary fiscal stance. The magnitude of the policy effects are examined using a calibrated version of the model.
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Bibliographic InfoArticle provided by Finnish Economic Association in its journal Finnish Economic Papers.
Volume (Year): 10 (1997)
Issue (Month): 2 (Autumn)
Find related papers by JEL classification:
- E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
- H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
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- Pamela Labadie, 1989.
"Stochastic inflation and the equity premium,"
Discussion Paper / Institute for Empirical Macroeconomics
12, Federal Reserve Bank of Minneapolis.
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