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Growth and Inflation in a Monetary “Selling-Cost” Model

Author

Listed:
  • Stefano Bosi

    (Epee, University of Evry)

  • Michel Guillard

    (Epee, University of Evry)

Abstract

This paper presents a simple monetary “selling-cost” model in the spirit of Dornbusch and Frenkel [1973] who assume that there are real costs in terms of resources to “delivering” output to consumers and that producers may reduce these transaction costs by accepting money in exchange for products. Within an exogenous growth framework, this assumption easily justifies the existence of a negative relationship between i) inflation and transition growth in the short run and ii) inflation and output in the long run. Within an endogenous growth framework, this kind of transaction costs allows the existence of multiple steady states when monetary authorities control the rate of money creation. Under a mild assumption concerning the specification of the transaction costs, two stationary growth rates arise and the higher one is indeterminate. When indeterminacy occurs the monetary growth rate displays a positive impact on the balanced growth rate. Moreover the higher growth rate is recognized to be superior in terms of welfare. Eventually we investigate the role of monetary and fiscal policy to coordinate agents and drive the economy towards virtuous growth rates.

Suggested Citation

  • Stefano Bosi & Michel Guillard, 2000. "Growth and Inflation in a Monetary “Selling-Cost” Model," Documents de recherche 00-05, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
    • Handle: RePEc:eve:wpaper:00-05
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Transaction costs; Indeterminacy; Monetary policy; Fiscal theory of the price level;
    All these keywords.

    JEL classification:

    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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