Random Matching And Money In The Neoclassical Growth Model: Some Analytical Results
I use the monetary version of the neoclassical growth model developed by Aruoba, Waller, and Wright [ Journal of Monetary Economics (2011)] to study the properties of the model when there is exogenous growth. I first consider the planner's problem, and then the equilibrium outcome in a monetary economy. I do so by first using proportional bargaining to determine the terms of trade and then considering competitive price taking. I obtain closed-form solutions for all variables along the balanced growth path in all cases. I then derive closed-form solutions for the transition paths under the assumption of full depreciation and, in the monetary economy, a particular nonstationary interest rate policy. The key result is that inflation is damaging to per capita income levels along the balanced growth path and to short-run growth of the economy.
Volume (Year): 15 (2011)
Issue (Month): S2 (September)
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