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Inflation and investment in monetary growth models

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Abstract

The article contains a review of monetary growth models. We analyze the ways in which money is introduced into these models and the models’ conclusions about the impact of inflation on investment. We find that the models differ widely with respect to the ways in which they account for money and its functions in the economy as well as with respect to the “technical” assumptions, about e.g. the form of the utility function or the production function. Despite these differences most models fail to adequately capture money’s role and are highly sensitive to changes in the assumptions. Moreover, the models differ in their predictions about inflation’s impact on capital accumulation, with some models offering conclusions that are not only counterintuitive but also inconsistent with empirical evidence.

Suggested Citation

  • Piotr Ciżkowicz & Marcin Hołda & Andrzej Rzońca, 2009. "Inflation and investment in monetary growth models," Bank i Kredyt, Narodowy Bank Polski, vol. 40(6), pages 9-40.
  • Handle: RePEc:nbp:nbpbik:v:40:y:2009:i:6:p:9-40
    Note: E22, E31, E52, O42
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    More about this item

    Keywords

    investment; inflation; monetary models of growth; monetary search theoretic models;
    All these keywords.

    JEL classification:

    • O42 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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