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The Cash-In-Advance Constraint in Monetary Growth Models

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  • Burkhard Heer
  • Alfred Maussner

Abstract

In most monetary models of economic growth, higher long-run inflation is associated with a decline in the growth rate and employment. We show that this result is sensitive with respect to the specification of the cash-in-advance constraint. We consider three types of endogenous growth models: 1) the AK-model, 2) the Lucas (1990) supply-side model, and 3) the two-sector model of Jones and Manuelli (1995). With the standard cash-in-advance constraint on consumption, higher inflation results in lower growth and employment in all three models, while, in the cash-credit good economy of Dotsey and Ireland (1996), the effect is the exact opposite.

Suggested Citation

  • Burkhard Heer & Alfred Maussner, 2011. "The Cash-In-Advance Constraint in Monetary Growth Models," CESifo Working Paper Series 3647, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_3647
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    References listed on IDEAS

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    More about this item

    Keywords

    inflation; growth; costly credit; search unemployment;

    JEL classification:

    • O42 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models

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