The real effect of inflation in liquidity constrained models
AbstractThis article identifies a new channel through which inflation affects the real economy. In a simple monetary model where agents face heterogenous income flows, it is proven that credit constraints create heterogeneity in money demand. Because of this heterogeneity, long run inflation affects the real interest rate and real variables, even when there are no redistributive effects, no distorting fiscal policy, no substitution between leisure and working time, and when prices are flexible. For realistic utility functions, inflation is found to raise the capital stock, but to decrease welfare.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by HAL in its series PSE Working Papers with number halshs-00590556.
Date of creation: Dec 2005
Date of revision:
Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00590556
Contact details of provider:
Web page: http://hal.archives-ouvertes.fr/
inflation ; credit constraints ; heterogenous agents;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bullard, James & Keating, John W., 1995. "The long-run relationship between inflation and output in postwar economies," Journal of Monetary Economics, Elsevier, vol. 36(3), pages 477-496, December.
- Timothy J. Kehoe & David K. Levine & Michael Woodford, 1990.
"The optimum quantity of money revisited,"
404, Federal Reserve Bank of Minneapolis.
- Weiss, Laurence M, 1980. "The Effects of Money Supply on Economic Welfare in the Steady State," Econometrica, Econometric Society, vol. 48(3), pages 565-76, April.
- Jappelli, Tullio, 1990. "Who Is Credit Constrained in the U.S. Economy?," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 219-34, February.
- Timothy J. Kehoe & David K. Levine, 2000. "Liquidity Constrained vs. Debt Constrained Markets," Levine's Working Paper Archive 14, David K. Levine.
- Yann Algan & Xavier Ragot, 2005.
"Monetary policy with heterogenous agents and credit constraints,"
PSE Working Papers
- Yann Algan & Xavier Ragot, 2006. "Monetary Policy with Heterogeneous Agents and Credit Constraints," Computing in Economics and Finance 2006 292, Society for Computational Economics.
- Xavier Ragot & Yann Algan, 2005. "Monetary Policy with Heterogenous Agents and Credit Constraints," Sciences Po publications 2005 - 45, Sciences Po.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD).
If references are entirely missing, you can add them using this form.