Advanced Search
MyIDEAS: Login

Liquidity, innovation and growth

Contents:

Author Info

  • Aleksander Berentsen
  • Mariana Rojas Breu
  • Shouyong Shi

Abstract

Many countries simultaneously suffer from high inflation, low growth and poorly developed financial sectors. In this paper, we integrate a microfounded model of money and finance into a model of endogenous growth to examine the effects of inflation on welfare, growth and the size of the financial sector. A novel feature is that the innovation sector is decentralized. Financial intermediaries arise endogenously to provide liquidity to this sector. Consistent with the data but in contrast to previous work, reducing inflation generates large growth gains. These large gains cannot be easily reproduced by imposing a cash-in-advance constraint in the innovation sector.

Download Info

If 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.
File URL: http://www.iew.uzh.ch/wp/iewwp441.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Institute for Empirical Research in Economics - University of Zurich in its series IEW - Working Papers with number 441.

as in new window
Length:
Date of creation: Sep 2009
Date of revision: Oct 2012
Handle: RePEc:zur:iewwpx:441

Contact details of provider:
Postal: Blümlisalpstrasse 10, CH-8006 Zürich
Phone: +41-1-634 22 05
Fax: +41-1-634 49 07
Email:
Web page: http://www.ubscenter.uzh.ch/
More information through EDIRC

Related research

Keywords: Inflation; growth; search; innovation; credit;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Stockman, Alan C., 1981. "Anticipated inflation and the capital stock in a cash in-advance economy," Journal of Monetary Economics, Elsevier, vol. 8(3), pages 387-393.
  2. Max Gillman & Michal Kejak, 2005. "Contrasting Models of the Effect of Inflation on Growth," Journal of Economic Surveys, Wiley Blackwell, vol. 19(1), pages 113-136, 02.
  3. Neville Francis & Valerie A. Ramey, 2005. "A Century of Work and Leisure," 2005 Meeting Papers 250, Society for Economic Dynamics.
  4. Fischer, Stanley, 1981. "Towards an understanding of the costs of inflation: II," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 15(1), pages 5-41, January.
  5. Gylfason, Thorvaldur & Herbertsson, Tryggvi Thor, 1996. "Does Inflation Matter for Growth?," CEPR Discussion Papers 1503, C.E.P.R. Discussion Papers.
  6. 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, vol. 70(279), pages 439-450, 08.
  7. Aleksander Berentsen & Gabriele Camera, 2004. "Money, Credit, and Banking," 2004 Meeting Papers 473, Society for Economic Dynamics.
  8. Rojas Breu, Mariana, 2013. "The welfare effect of access to credit," Open Access publications from Université Paris-Dauphine urn:hdl:123456789/7353, Université Paris-Dauphine.
  9. Titman, Sheridan & Wessels, Roberto, 1988. " The Determinants of Capital Structure Choice," Journal of Finance, American Finance Association, vol. 43(1), pages 1-19, March.
  10. Jonathan Chiu & Cesaire Meh & Randall Wright, 2011. "Innovation and Growth with Financial, and other, Frictions," NBER Working Papers 17512, National Bureau of Economic Research, Inc.
  11. Alam, Pervaiz & Walton, Karen Schuele, 1995. "Information Asymmetry and Valuation Effects of Debt Financing," The Financial Review, Eastern Finance Association, vol. 30(2), pages 289-311, May.
  12. Shouyong Shi, 1997. "A Divisible Search Model of Fiat Money," Econometrica, Econometric Society, vol. 65(1), pages 75-102, January.
  13. Randall Wright & Guillame Rocheteau, 2003. "Money in Search Equilibrium, in Competitive Equilibrium, and in Competitive Search Equilibrium," Levine's Bibliography 666156000000000302, UCLA Department of Economics.
  14. David E. Altig, 2003. "What is the right inflation rate?," Economic Commentary, Federal Reserve Bank of Cleveland, issue Sep 15.
  15. Greenwood, Jeremy & Jovanovic, Boyan, 1990. "Financial Development, Growth, and the Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1076-1107, October.
  16. King, R.G. & Rebelo, S.T., 1989. "Transitional Dynamics And Economic Growth In The Neoclassical Model," RCER Working Papers 206, University of Rochester - Center for Economic Research (RCER).
  17. Gillman, Max, 1993. "The welfare cost of inflation in a cash-in-advance economy with costly credit," Journal of Monetary Economics, Elsevier, vol. 31(1), pages 97-115, February.
  18. Max Gillman & Michal Kejak, 2011. "Inflation, Investment and Growth: a Money and Banking Approach," Economica, London School of Economics and Political Science, vol. 78(310), pages 260-282, 04.
  19. Aleksander Berentsen & Guido Menzio & Randall Wright, 2009. "Inflation and unemployment in the long run," IEW - Working Papers 442, Institute for Empirical Research in Economics - University of Zurich.
  20. Max Gillman & Mark N. Harris & László Mátyás, 2004. "Inflation and growth: Explaining a negative effect," Empirical Economics, Springer, vol. 29(1), pages 149-167, January.
  21. Waller, Christopher J., 2011. "Random Matching And Money In The Neoclassical Growth Model: Some Analytical Results," Macroeconomic Dynamics, Cambridge University Press, vol. 15(S2), pages 293-312, September.
  22. Shi Shouyong, 1997. "Search for a Monetary Propagation Mechanism," Working Papers 966, Queen's University, Department of Economics.
  23. Daron Acemoglu & Fabrizio Zilibotti, 1994. "Was Prometheus unbound by chance? Risk, diversification and growth," Economics Working Papers 98, Department of Economics and Business, Universitat Pompeu Fabra.
  24. Larry E. Jones & Rodolfo E. Manuelli, 1993. "Growth and the Effects of Inflation," NBER Working Papers 4523, National Bureau of Economic Research, Inc.
  25. Ross Levine & Norman Loayza & Thorsten Beck, 2002. "Financial Intermediation and Growth: Causality and Causes," Central Banking, Analysis, and Economic Policies Book Series, in: Leonardo Hernández & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (S (ed.), Banking, Financial Integration, and International Crises, edition 1, volume 3, chapter 2, pages 031-084 Central Bank of Chile.
  26. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  27. Ricardo Lagos & Randall Wright, 2005. "A Unified Framework for Monetary Theory and Policy Analysis," Journal of Political Economy, University of Chicago Press, vol. 113(3), pages 463-484, June.
  28. King, Robert G. & Levine, Ross, 1993. "Finance, entrepreneurship and growth: Theory and evidence," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 513-542, December.
  29. repec:fip:fedlpr:y:1996:i:may:p:41-58:n:v.78no.3 is not listed on IDEAS
  30. Bruno, Michael & Easterly, William, 1998. "Inflation crises and long-run growth," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 3-26, February.
  31. Gillman, Max & Kejak, Michal, 2005. "Inflation and Balanced-Path Growth with Alternative Payment Mechanisms," Cardiff Economics Working Papers E2005/15, Cardiff University, Cardiff Business School, Economics Section.
  32. Levine, Ross, 1991. " Stock Markets, Growth, and Tax Policy," Journal of Finance, American Finance Association, vol. 46(4), pages 1445-65, September.
  33. Ireland, Peter N, 1994. "Money and Growth: An Alternative Approach," American Economic Review, American Economic Association, vol. 84(1), pages 47-65, March.
  34. Ross Levine, 2004. "Finance and Growth: Theory and Evidence," NBER Working Papers 10766, National Bureau of Economic Research, Inc.
  35. Opler, Tim & Pinkowitz, Lee & Stulz, Rene & Williamson, Rohan, 1999. "The determinants and implications of corporate cash holdings," Journal of Financial Economics, Elsevier, vol. 52(1), pages 3-46, April.
  36. Schreft, S L, 1992. "Transaction Costs and the Use of Cash and Credit," Economic Theory, Springer, vol. 2(2), pages 283-96, April.
  37. Acemoglu, Daron & Aghion, Philippe & Zilibotti, Fabrizio, 2002. "Distance to Frontier, Selection, and Economic Growth," CEPR Discussion Papers 3467, C.E.P.R. Discussion Papers.
  38. Philippe Aghion & George-Marios Angeletos & Abhijit Banerjee & Kalina Manova, 2005. "Volatility and Growth: Credit Constraints and Productivity-Enhancing Investment," NBER Working Papers 11349, National Bureau of Economic Research, Inc.
  39. Ben Craig & Guillaume Rocheteau, 2005. "Rethinking the welfare cost of inflation," Economic Commentary, Federal Reserve Bank of Cleveland, issue Mar 1.
  40. Aghion, Philippe & Angeletos, George-Marios & Banerjee, Abhijit & Manova, Kalina, 2010. "Volatility and growth: Credit constraints and the composition of investment," Journal of Monetary Economics, Elsevier, vol. 57(3), pages 246-265, April.
  41. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  42. Berger, Allen N. & Udell, Gregory F., 1990. "Collateral, loan quality and bank risk," Journal of Monetary Economics, Elsevier, vol. 25(1), pages 21-42, January.
  43. Michael Dotsey & Peter Ireland, 1994. "The welfare cost of inflation in general equilibrium," Working Paper 94-04, Federal Reserve Bank of Richmond.
  44. John Boyd & Bruce Champ, 2003. "Inflation and financial market performance: what have we learned in the last ten years," Working Paper 0317, Federal Reserve Bank of Cleveland.
  45. Bencivenga, V.R. & Smith, B.D., 1988. "Some Consequences Of Credit Rationing In An Endogenous Growth Model," RCER Working Papers 159, University of Rochester - Center for Economic Research (RCER).
  46. Silveira, Rafael & Wright, Randall, 2010. "Search and the market for ideas," Journal of Economic Theory, Elsevier, vol. 145(4), pages 1550-1573, July.
  47. Kim, Chang-Soo & Mauer, David C. & Sherman, Ann E., 1998. "The Determinants of Corporate Liquidity: Theory and Evidence," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 33(03), pages 335-359, September.
  48. Shleifer, Andrei & Vishny, Robert W, 1992. " Liquidation Values and Debt Capacity: A Market Equilibrium Approach," Journal of Finance, American Finance Association, vol. 47(4), pages 1343-66, September.
  49. Paul Gomme, 1991. "Money and growth revisited," Discussion Paper / Institute for Empirical Macroeconomics 55, Federal Reserve Bank of Minneapolis.
  50. Brown, James R. & Petersen, Bruce C., 2011. "Cash holdings and R&D smoothing," Journal of Corporate Finance, Elsevier, vol. 17(3), pages 694-709, June.
  51. Robert E. Lucas, Jr., 2000. "Inflation and Welfare," Econometrica, Econometric Society, vol. 68(2), pages 247-274, March.
  52. David McLean, R., 2011. "Share issuance and cash savings," Journal of Financial Economics, Elsevier, vol. 99(3), pages 693-715, March.
  53. Gomme, P., 1993. "Money and Growth Revisited : Measuring the Costs of Inflation in an Endogenous Growth Model," Discussion Papers dp93-03, Department of Economics, Simon Fraser University.
  54. Mikkelson, Wayne H. & Partch, M. Megan, 2003. "Do Persistent Large Cash Reserves Hinder Performance?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(02), pages 275-294, June.
  55. James R. Brown & Steven M. Fazzari & Bruce C. Petersen, 2009. "Financing Innovation and Growth: Cash Flow, External Equity, and the 1990s R&D Boom," Journal of Finance, American Finance Association, vol. 64(1), pages 151-185, 02.
  56. Boyd, John H. & Levine, Ross & Smith, Bruce D., 2001. "The impact of inflation on financial sector performance," Journal of Monetary Economics, Elsevier, vol. 47(2), pages 221-248, April.
  57. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
Full references (including those not matched with items on IDEAS)

Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Liquidity, Innovation and Growth
    by Christian Zimmermann in NEP-DGE blog on 2009-10-11 03:08:02
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Chu, Angus C. & Cozzi, Guido, 2012. "R&D and economic growth in a cash-in-advance economy," MPRA Paper 39778, University Library of Munich, Germany.
  2. Jonathan Chiu & Cesaire Meh & Randall Wright, 2011. "Innovation and growth with financial, and other, frictions," Working Papers 688, Federal Reserve Bank of Minneapolis.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:zur:iewwpx:441

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marita Kieser).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.