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Non-neutrality and Uncertainty in a Model of Growth

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  • D Varvarigos

Abstract

This paper develops a model that examines the effect of monetary policy uncertainty on trend growth. It is assume that the provision of potentially productive public goods and services is financed by money creation (seignorage). Uncertainty derives from stochastic fluctuations in money supply. It is found that money is not neutral and that higher variability in money growth affects the choices of individuals on how to allocate their time between different activities. Depending on the underlying mechanism through which improvements in productivity occur, a greater degree of monetary policy uncertainty (higher monetary variability) can have either positive or negative effects on the average rate of growth.

Suggested Citation

  • D Varvarigos, 2004. "Non-neutrality and Uncertainty in a Model of Growth," Centre for Growth and Business Cycle Research Discussion Paper Series 41, Economics, The University of Manchester.
  • Handle: RePEc:man:cgbcrp:41
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    File URL: http://hummedia.manchester.ac.uk/schools/soss/cgbcr/discussionpapers/dpcgbcr41.pdf
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    Keywords

    volatility; growth; seignorage;
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