Monetary Growth, Inflation, and Economic Activity in a Dynamic Macro Model
AbstractThis paper analyzes the effects of an increase in the monetary growth ra te within a dynamic optimizing macroeconomic model. Both the short-ru n and long-run effects, and therefore the adjustments along the trans itional path, depend critically upon the tax structure and the firm's corresponding optimal financial decisions. With all bond financing, the effects depend upon the extent to which interest payments are tax deductible for corporations. If this is sufficiently high, the effec ts of an increase in the monetary growth rate are generally expansion ary. With low interest deductibility, or if the tax structure induces equity financing, the effects are generally contractionary. Copyright 1987 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
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Bibliographic InfoArticle provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.
Volume (Year): 28 (1987)
Issue (Month): 3 (October)
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Other versions of this item:
- Stephen J. Turnovsky, 1987. "Monetary Growth, Inflation, and Economic Activity in a Dynamic Macro Model," NBER Working Papers 2133, National Bureau of Economic Research, Inc.
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- Bianconi, Marcelo, 1995. "Inflation and the real price of equities: Theory with some empirical evidence," Journal of Macroeconomics, Elsevier, vol. 17(3), pages 495-514.
- Chang, Wen-ya, 1999. "Government spending, endogenous labor, and capital accumulation," Journal of Economic Dynamics and Control, Elsevier, vol. 23(8), pages 1225-1242, August.
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