Endogenous Specialization and Factor Substitution in a Monetary Growth Model
AbstractWe study the effects of monetary policy on the choice of production technology and specialization. The level of output specialization is represented by the elasticity of substitution between capital and labor within a CES production function. A higher degree of specialization increases trading costs but also improves productivity. Money is introduced via a cash-in-advance constraint on consumption and specialization. Agents having access to a menu of production functions differing in the elasticity of substitution choose the optimal degree of specialization along with real money balances. Depending on the stage of development as measured by the initial degree of specialization both a Tobin and a reverse-Tobin effect can occur.
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Bibliographic InfoPaper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c014_036.
Length: 24 pages
Date of creation: Jun 2009
Date of revision:
Monetary growth model; Inflation; Factor substitution; Cash-in-advance constraint; Endogenous specialization;
Find related papers by JEL classification:
- O42 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models
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