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Price Rigidities, Inflationary Finance and Long-Run Growth

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  • Tsoukis, Christopher

Abstract

The paper considers a monopolistically competitive intertemporally optimizing monetary economy featuring long-term growth. Inflation is generated through sluggish price-setting and contributes to budgetary finance through seignorage. This setup permits exploration of the interaction between inflation and growth in a tractable way. Superneutrality holds in the long but not the short run. The budget deficit fuels inflation with a hysteresis. Growth and inflation are negatively correlated in the long run, with causality running from the former to the latter, and positively correlated in the short run regardless of the origin of shocks. Price flexibility precipitates adjustment but appears also to destabilize output. Copyright 2000 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research

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  • Tsoukis, Christopher, 2000. "Price Rigidities, Inflationary Finance and Long-Run Growth," Bulletin of Economic Research, Wiley Blackwell, vol. 52(1), pages 67-89, January.
    • Handle: RePEc:bla:buecrs:v:52:y:2000:i:1:p:67-89
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    Cited by:

    1. Chris Tsoukis & George Kapetanios & Joseph Pearlman, 2007. "The Elusive Persistence: Wage and Price Rigidities, the Phillips Curve, and Inflation Dynamics," Working Papers 619, Queen Mary University of London, School of Economics and Finance.
    2. Christopher Tsoukis & George Kapetanios & Joseph Pearlman, 2011. "Elusive Persistence: Wage And Price Rigidities, The New Keynesian Phillips Curve And Inflation Dynamics," Journal of Economic Surveys, Wiley Blackwell, vol. 25(4), pages 737-768, September.

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