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The Inflation Tax in a Convex Model of Equilibrium Growth

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  • Marquis, Milton H
  • Reffett, Kevin L

Abstract

A general equilibrium monetary economy is described that exhibits equilibrium growth. The production technology is consistent with Jones and Manuelli (1990) and Rebelo (1991). The inflation tax and nominal interest rates are shown to be inversely related to the equilibrium growth rates of real variables until a critical point is reached. At this point, equilibrium growth is eliminated and the predictions of Stockman (1981) and Abel (1985) concerning the 'level effects' of distortionary monetary policies appear. For the nominal side of the model, a version of the prediction of Friedman (1969) is shown to hold for a particular balanced growth path. Following King and Rebelo (1990), a linear growth version of the model is calibrated to illustrate the potentially large growth and welfare effects of moderate inflations. Copyright 1995 by The London School of Economics and Political Science.

Suggested Citation

  • Marquis, Milton H & Reffett, Kevin L, 1995. "The Inflation Tax in a Convex Model of Equilibrium Growth," Economica, London School of Economics and Political Science, vol. 62(245), pages 109-121, February.
  • Handle: RePEc:bla:econom:v:62:y:1995:i:245:p:109-21
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    Cited by:

    1. Seiya Fujisaki & Kazuo Mino, 2010. "Growth and Distributional Effects of Inflation with Progressive Taxation," Economics Bulletin, AccessEcon, vol. 30(4), pages 3055-3065.
    2. Joseph H. Haslag, 1997. "Output, growth, welfare, and inflation: a survey," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q II, pages 11-21.
    3. Wen-ya Chang & Hsueh-fang Tsai & Juin-jen Chang & Kuo-Hao Lee, 2015. "Consumption tax, seigniorage tax and tax switch in a cash-in-advance economy of endogenous growth," Journal of Economics, Springer, vol. 114(1), pages 23-42, January.
    4. Milton H. Marquis, 2001. "Inflation taxes, financial intermediation, and home production," Working Paper Series 2001-04, Federal Reserve Bank of San Francisco.
    5. Futagami, Koichi & Shibata, Akihisa, 1999. "Welfare effects of bubbles in an endogenous growth model," Research in Economics, Elsevier, vol. 53(4), pages 381-403, December.
    6. Itaya, Jun-Ichi & Mino, Kazuo, 2007. "Technology, Preference Structure, And The Growth Effect Of Money Supply," Macroeconomic Dynamics, Cambridge University Press, vol. 11(05), pages 589-612, November.
    7. Chang, Wen-ya, 2002. "Examining the long-run effect of money on economic growth: an alternative view," Journal of Macroeconomics, Elsevier, vol. 24(1), pages 81-102, March.

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