The effects of monetary policy at different stages of economic development
The effects of monetary policy vary significantly across countries. In particular, recent empirical work finds evidence of a Tobin effect in high income countries and a reverse Tobin effect in less developed economies. We present a neoclassical growth model where money is required for investment and consumption purposes. In contrast to standard cash-in-advance models, the reliance on cash is inversely related to the extent of capital formation. In this setting, we demonstrate that the effects of monetary policy depend on the level of development. In particular, inflation adversely affects capital formation at low levels of income because there is a high reliance on cash and a high cost of capital. By comparison, the financial system operates more efficiently in advanced countries. Consequently, monetary policy generates a Tobin effect.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Shaghil Ahmed & John H. Rogers, 1998.
"Inflation and the great ratios: long-term evidence from the U.S,"
International Finance Discussion Papers
628, Board of Governors of the Federal Reserve System (U.S.).
- Ahmed, Shaghil & Rogers, John H., 2000. "Inflation and the great ratios: Long term evidence from the U.S," Journal of Monetary Economics, Elsevier, vol. 45(1), pages 3-35, February.
- Gaetano Antinolfi & Claudia M. Landeo & Maxim Nikitin, 2007. "Dollarization and the inflation threshold," Canadian Journal of Economics, Canadian Economics Association, vol. 40(2), pages 628-649, May.
- Cooley, Thomas F & Hansen, Gary D, 1991.
"The Welfare Costs of Moderate Inflations,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 23(3), pages 483-503, August.
- Roubini, N. & Sala-i-Martin, X., 1992.
"A Growth Model of Inflation, Tax Evasion and Financial Repression,"
658, Yale - Economic Growth Center.
- Roubini, Nouriel & Sala-i-Martin, Xavier, 1995. "A growth model of inflation, tax evasion, and financial repression," Journal of Monetary Economics, Elsevier, vol. 35(2), pages 275-301, April.
- Nouriel Roubini & Xavier Sala-i-Martin, 1992. "A Growth Model of Inflation, Tax Evasion, and Financial Repression," NBER Working Papers 4062, National Bureau of Economic Research, Inc.
- Edgar A. Ghossoub & Robert Reed, .
"Liquidity Risk, Economic Development, and the Effects of Monetary Policy,"
0070, College of Business, University of Texas at San Antonio.
- Ghossoub, Edgar & Reed III, Robert R., 2010. "Liquidity risk, economic development, and the effects of monetary policy," European Economic Review, Elsevier, vol. 54(2), pages 252-268, February.
- Stanley Fischer, 1993.
"The Role of Macroeconomic Factors in Growth,"
NBER Working Papers
4565, National Bureau of Economic Research, Inc.
- 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.
- Robert J. Barro, 1995.
"Inflation and Economic Growth,"
NBER Working Papers
5326, National Bureau of Economic Research, Inc.
- Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March.
- Diamond, Peter A, 1982.
"Aggregate Demand Management in Search Equilibrium,"
Journal of Political Economy,
University of Chicago Press, vol. 90(5), pages 881-94, October.
- Howitt, Peter, 1985. "Transaction Costs in the Theory of Unemployment," American Economic Review, American Economic Association, vol. 75(1), pages 88-100, March.
- Bae, Sang-Kun & Ratti, Ronald A., 2000. "Long-run neutrality, high inflation, and bank insolvencies in Argentina and Brazil," Journal of Monetary Economics, Elsevier, vol. 46(3), pages 581-604, December.
- Maxim Nikitin & Steven Russell, 2006. "Monetary policy arithmetic: reconciling theory with evidence," Canadian Journal of Economics, Canadian Economics Association, vol. 39(1), pages 348-374, February.
- Friedrich Schneider & Dominik Enste, 2000.
"Shadow Economies Around the World: Size, Causes, and Consequences,"
IMF Working Papers
00/26, International Monetary Fund.
- Friedrich Schneider & Dominik Enste, 1999. "Shadow Economies Around the World - Size, Causes, and Consequences," CESifo Working Paper Series 196, CESifo Group Munich.
- Freeman, Scott & Huffman, Gregory W, 1991. "Inside Money, Output, and Causality," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(3), pages 645-67, August.
- Rapach, David E, 2003. " International Evidence on the Long-Run Impact of Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(1), pages 23-48, February.
When requesting a correction, please mention this item's handle: RePEc:eee:ecolet:v:117:y:2012:i:1:p:138-141. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.