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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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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
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Cited by:
  1. Chu, Angus C. & Cozzi, Guido & Furukawa, Yuichi, 2013. "Inflation, Unemployment and Economic Growth in a Schumpeterian Economy," Economics Working Paper Series 1323, University of St. Gallen, School of Economics and Political Science.
  2. Chu, Angus C. & Cozzi, Guido & Lai, Ching-Chong & Liao, Chih-Hsing, 2013. "Monetary Policy, R&D and Economic Growth in an Open Economy," MPRA Paper 47364, University Library of Munich, Germany.
  3. Jonathan Chiu & Césaire Meh & Randall Wright, 2011. "Innovation and Growth with Financial, and Other, Frictions," Working Papers 11-25, Bank of Canada.
  4. Chu, Angus C. & Cozzi, Guido & Furukawa, Yuichi, 2013. "A Schumpeterian Analysis of Monetary Policy, Innovation and North-South Technology Transfer," MPRA Paper 49533, University Library of Munich, Germany.
  5. Angus C. Chu & Guido Cozzi, 2014. "R&D And Economic Growth In A Cash‐In‐Advance Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55, pages 507-524, 05.

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