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A Two-Sector Model of Endogenous Growth with Money


  • Salvatore CAPASSO

    (CNR, ISSM and IDEGA, University of Santiago de Compostela, Spain)


Use a two-sector model in which both physical and human capital is employed in the production process, and real money balances function as a Hicks neutral technological factor in the production of physical goods. Even though money has no effect on steady state growth, its inclusion as a production factor forces production parameters to remain within a specific range of values, so that human capital and physical capital grow at different rates. In this model, steady state growth is not influenced (as it usually is) by the parameters by which the willingness to save is determined, such as the rate of time preference or rates of depreciation. Rather, it is determined solely by the form and parameters of the production functions.

Suggested Citation

  • Salvatore CAPASSO, 2004. "A Two-Sector Model of Endogenous Growth with Money," Rivista Internazionale di Scienze Sociali, Vita e Pensiero, Pubblicazioni dell'Universita' Cattolica del Sacro Cuore, vol. 112(3), pages 255-275.
  • Handle: RePEc:vep:journl:y:2004:v:112:i:3:p:255-275

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    inflation and growth; money in the production function; superneutrality;

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O42 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models


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