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Optimal Growth and Disinflation under Incomplete Credit Markets

  • Alejandro Rodríguez-Arana

    ()

    (Universidad Iberoamericana. México, D.F. Mexico)

This paper shows that when money is necessary to consume but not to invest a gradual reduction of inflation has a positive effect on output, growth or both. If there is an externality à la Romer, a gradual and permanent disinflation could be optimal from a social point of view. In that case, the consistent monetary policy would be to reduce the growth of the nominal quantity of money also gradually.

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File URL: http://www.economiamexicana.cide.edu/num_anteriores/X-1/02_ALEJANDRO_RODRIGUEZ_37-58.pdf
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Article provided by in its journal Economia Mexicana NUEVA EPOCA.

Volume (Year): X (2001)
Issue (Month): 1 (January-June)
Pages: 37-58

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Handle: RePEc:emc:ecomex:v:10:y:2001:i:1:p:37-58
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  1. Hahn, Frank, 1990. "On Inflation," Oxford Review of Economic Policy, Oxford University Press, vol. 6(4), pages 15-25, Winter.
  2. Robert E. Lucas Jr. & Nancy L. Stokey, 1984. "Money and Interest in Cash-In-Advance Economy," Discussion Papers 628, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Sergio T. Rebelo, 1990. "Long Run Policy Analysis and Long Run Growth," NBER Working Papers 3325, National Bureau of Economic Research, Inc.
  4. De Gregorio, Jose, 1992. "The effects of inflation on economic growth : Lessons from Latin America," European Economic Review, Elsevier, vol. 36(2-3), pages 417-425, April.
  5. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-37, October.
  6. Willem H. Buiter & Marcus H. Miller, 1983. "Costs and Benefits of an Anti-Inflationary Policy: Questions and Issues," NBER Working Papers 1252, National Bureau of Economic Research, Inc.
  7. Drazen, Allan, 1985. "Tight money and inflation: Further Results," Journal of Monetary Economics, Elsevier, vol. 15(1), pages 113-120, January.
  8. Sargent, Thomas J & Wallace, Neil, 1973. "The Stability of Models of Money and Growth with Perfect Foresight," Econometrica, Econometric Society, vol. 41(6), pages 1043-48, November.
  9. Orphanides, Athanasios & Solow, Robert M., 1990. "Money, inflation and growth," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 1, chapter 6, pages 223-261 Elsevier.
  10. 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.
  11. De Gregorio, Jose, 1993. "Inflation, taxation, and long-run growth," Journal of Monetary Economics, Elsevier, vol. 31(3), pages 271-298, June.
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