Can growth-enhanced monetary policy improve welfare when people seek social status?
AbstractThis paper examines the growth and welfare effects from an increase in the rate of money supply in an Ak type growth model with a relative wealth-enhanced social status motive, production externalities, and liquidity constraints. When only consumption is constrained by liquidity, fast money supply can hasten output growth unless seigniorage revenue is wasted and production externalities do not exist. We find that even though money growth normally promotes economic growth, it does not improve welfare when capital stock is over-accumulated. In general, an optimal monetary policy minimizes seigniorage. Our results also conclude that the optimal monetary policy rarely follows the Friedman rule. Copyright Springer-Verlag Wien 2013
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Bibliographic InfoArticle provided by Springer in its journal Journal of Economics.
Volume (Year): 110 (2013)
Issue (Month): 3 (November)
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Web page: http://www.springerlink.com/link.asp?id=108909
Wealth-enhanced social status; Production externalities; Cash-in-advance constraint; Monetary policy; O42; E52;
Find related papers by JEL classification:
- O42 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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