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Inflation and Balanced-Path Growth with Alternative Payment Mechanisms

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  • Max Gillman

    ()
    (Central European University, Department of Economics)

  • Michal Kejak

    ()
    (CERGE-EI)

Abstract

The paper shows that contrary to conventional wisdom an endogenous growth economy with human capital and alternative payment mechanisms can robustly explain major facets of the long run inflation experience. A negative inflation-growth relation is explained, including a striking nonlinearity found re-peatedly in empirical studies. A set of Tobin (1965) effects are also explained and, further, linked in magnitude to the growth effects through the interest elasticity of money demand. Undis-closed previously, this link helps fill out the intuition of how the inflation experience can be plausibly explained in a robust fashion with a model extended to include credit as a payment mechanism.

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File URL: http://econ.core.hu/doc/dp/dp/mtdp0402.pdf
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Bibliographic Info

Paper provided by Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences in its series IEHAS Discussion Papers with number 0402.

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Length: 40 pages
Date of creation: Feb 2004
Date of revision:
Handle: RePEc:has:discpr:0402

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Keywords: Human capital; cash-in-advance; interest-elasticity; credit production;

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  14. Max Gillman & Anton Nakov, 2003. "A Revised Tobin Effect from Inflation: Relative Input Price and Capital Ratio Realignments, USA and UK, 1959-1999," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 70(279), pages 439-450, 08.
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