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'Soft' growth and the role of monetary policy in selecting the long-run equilibrium path

  • Luigi Bonatti


    (Department of Economics, University of Bergamo)

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    Combining employment and growth theory with a cash-in-advance constraint, the model determines the balanced growth path (BGP). Under low intertemporal elasticity of substitution in consumption, the Friedman rule is consistent with the existence of an unique BGP: monetary rules leading to a steady-state rate of money expansion higher than that dictated by the Friedman rule lower balanced growth. Under high elasticity, the Friedman rule is consistent with multiple BGP: the authority can "select" the BGP exhibiting the highest growth rate by expanding money at the appropriate fixed rate, since balanced growth rises with the fixed rate of money expansion.

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    Paper provided by University of Bergamo, Department of Economics in its series Working Papers (-2012) with number 0306.

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    Length: 50 pages
    Date of creation: 2003
    Date of revision:
    Handle: RePEc:brg:wpaper:0306
    Contact details of provider: Postal: via dei Caniana, 2 - 24127 BERGAMO
    Phone: 0039 035 2052111
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