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Wealth effects in a cash-in-advance economy

Author

Listed:
  • Eric Kam

    (Ryerson University)

  • Paul Missios

    (Ryerson University)

Abstract

This paper examines the monetary growth implications of combining Stockman's cash-in-advance constraint on consumption and capital goods and an endogenous rate of time preference that is an increasing function of real wealth. The cash-in-advance constraint imposes an investment tax that reduces steady state consumption and capital. However, endogenous time preference wealth effects link the real and monetary sectors to yield a Mundell-Tobin effect. Cash-in-advance constraint effects dominate endogenous time preference wealth effects so that monetary growth reduces steady state capital and consumption.

Suggested Citation

  • Eric Kam & Paul Missios, 2003. "Wealth effects in a cash-in-advance economy," Economics Bulletin, AccessEcon, vol. 5(2), pages 1-7.
    • Handle: RePEc:ebl:ecbull:eb-03e00001
    as

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    File URL: http://www.accessecon.com/pubs/EB/2003/Volume5/EB-03E00001A.pdf
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    References listed on IDEAS

    as
    1. Stockman, Alan C., 1981. "Anticipated inflation and the capital stock in a cash in-advance economy," Journal of Monetary Economics, Elsevier, vol. 8(3), pages 387-393.
    2. David K. H. Begg, 1980. "Rational Expectations and the Non-neutrality of Systematic Monetary Policy," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 47(2), pages 293-303.
    3. Epstein, Larry G & Hynes, J Allan, 1983. "The Rate of Time Preference and Dynamic Economic Analysis," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 611-635, August.
    4. Keshab Shrestha & Sheng‐Syan Chen & Cheng‐few Lee, 2002. "Are Expected Inflation Rates and Expected Real Rates Negatively Correlated? A Long‐Run Test of the Mundell‐Tobin Hypothesis," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 25(3), pages 305-320, September.
    5. Wang, Ping & Yip, Chong K, 1992. "Alternative Approaches to Money and Growth," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(4), pages 553-562, November.
    6. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, December.
    7. David Laidler, 1969. "Money, Wealth and Time Preference in a Stationary Economy," Canadian Journal of Economics, Canadian Economics Association, vol. 2(4), pages 526-535, November.
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    Cited by:

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    More about this item

    Keywords

    cash-in-advance constraints;

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

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