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Liquidity, innovation and growth

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  • 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.

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

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Date of creation: Sep 2009
Date of revision: Oct 2012
Handle: RePEc:zur:iewwpx:441

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

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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
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Cited by:
  1. Chu, Angus C. & Cozzi, Guido & Furukawa, Yuichi, 2013. "Inflation, Unemployment and Economic Growth in a Schumpeterian Economy," MPRA Paper 50510, University Library of Munich, Germany.
  2. 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.
  3. Chu, Angus C. & Cozzi, Guido & Lai, Ching-Chong & Liao, Chih-Hsing, 2013. "Monetary Policy, R&D and Economic Growth in an Open Economy," Economics Working Paper Series 1315, University of St. Gallen, School of Economics and Political Science.
  4. Jonathan Chiu & Césaire Meh & Randall Wright, 2011. "Innovation and Growth with Financial, and Other, Frictions," Working Papers, Bank of Canada 11-25, Bank of Canada.
  5. Chu, Angus C. & Cozzi, Guido & Furukawa, Yuichi, 2013. "A Schumpeterian Analysis of Monetary Policy, Innovation and North-South Technology Transfer," Economics Working Paper Series 1319, University of St. Gallen, School of Economics and Political Science.

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