Money and Endogenous Growth in a Cash-in-Advance Model with Social Status
AbstractMotivated by the substantial increase of nominal money supply in the U.S. economy since late 2008, this paper examines the equilibrium growth effect of money/inflation within a standard one-sector AK model of endogenous growth with wealth-enhanced preferences for social status and the most generalized cash-in-advance constraint. We show that the sign for the correlation between money and output growth depends crucially on (i) the liquidity-constrained ratio of consumption to investment, and (ii) how the shadow price of physical capital responds to a change in the monetary growth rate. This money-growth correlation, as well as the growth effect of social status, turns out to be closely related to the local stability properties of the economy's balanced growth path(s).
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Bibliographic InfoPaper provided by University of California at Riverside, Department of Economics in its series Working Papers with number 200906.
Length: 18 pages
Date of creation: Jun 2009
Date of revision: Jun 2009
Money; Endogenous Growth; Cash-in-Advance Constraint; Social Status; In- determinacy;
Find related papers by JEL classification:
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- O42 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-07-03 (All new papers)
- NEP-CBA-2009-07-03 (Central Banking)
- NEP-DGE-2009-07-03 (Dynamic General Equilibrium)
- NEP-FDG-2009-07-03 (Financial Development & Growth)
- NEP-MAC-2009-07-03 (Macroeconomics)
- NEP-MON-2009-07-03 (Monetary Economics)
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