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Inflation, Financial Development and Endogenous Growth

  • Max Gillman
  • Mark N. Harris

    ()

The paper extends the literature on financial development, inflation, and growth by using the idea that both the rates of return on physical and human capital affect growth. This leads to the introduction of the investment rate into the model, as a proxy for the return to physical capital, along with the inflation rate as a variable affecting the return to human capital. As a result financial development plays a different role from the typical growth-enhancing effect found pervasively in the literature. Instead the results suggest a new hypothesis linking financial development to the nature of the effect of inflation on growth.

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File URL: http://www.buseco.monash.edu.au/ebs/pubs/wpapers/2004/wp24-04.pdf
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Paper provided by Monash University, Department of Econometrics and Business Statistics in its series Monash Econometrics and Business Statistics Working Papers with number 24/04.

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Length: 25 pages
Date of creation: Nov 2004
Date of revision:
Handle: RePEc:msh:ebswps:2004-24
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Web page: http://www.buseco.monash.edu.au/depts/ebs/
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  1. Gillman, Max & Kejak, Michal, 2005. "Inflation and Balanced-Path Growth with Alternative Payment Mechanisms," Cardiff Economics Working Papers E2005/15, Cardiff University, Cardiff Business School, Economics Section.
  2. Kormendi, Roger C. & Meguire, Philip G., 1985. "Macroeconomic determinants of growth: Cross-country evidence," Journal of Monetary Economics, Elsevier, vol. 16(2), pages 141-163, September.
  3. Michael Lee & Ritchard Longmire & Laszlo Matyas & Mark Harris, 1998. "Growth convergence: some panel data evidence," Applied Economics, Taylor & Francis Journals, vol. 30(7), pages 907-912.
  4. Javier Andrés & Ignacio Hernando & J. David López-Salido, 1999. "The Role of the Financial System in the Growth-Inflation Link: the OECD Experience," Banco de Espa�a Working Papers 9920, Banco de Espa�a.
  5. Boyd, John H. & Levine, Ross & Smith, Bruce D., 2001. "The impact of inflation on financial sector performance," Journal of Monetary Economics, Elsevier, vol. 47(2), pages 221-248, April.
  6. Breusch, Trevor S & Mizon, Grayham E & Schmidt, Peter, 1989. "Efficient Estimation Using Panel Data," Econometrica, Econometric Society, vol. 57(3), pages 695-700, May.
  7. Max Gillman & Mark N. Harris & László Mátyás, 2004. "Inflation and growth: Explaining a negative effect," Empirical Economics, Springer, vol. 29(1), pages 149-167, January.
  8. Aiyagari, S.R. & Braum, T. & Eckstein, Z., 1995. "Transaction Services, Inflation and Welfare," Papers 27-95, Tel Aviv - the Sackler Institute of Economic Studies.
  9. Mohsin S. Khan & A. Senhadji Semlali & Bruce D. Smith, 2001. "Inflation and Financial Depth," IMF Working Papers 01/44, International Monetary Fund.
  10. Gomme, Paul, 1993. "Money and growth revisited : Measuring the costs of inflation in an endogenous growth model," Journal of Monetary Economics, Elsevier, vol. 32(1), pages 51-77, August.
  11. Crowder, William J, 1998. "The Long-Run Link between Money Growth and Inflation," Economic Inquiry, Western Economic Association International, vol. 36(2), pages 229-43, April.
  12. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  13. Atish R. Ghosh & Steven Phillips, 1998. "Inflation, Disinflation, and Growth," IMF Working Papers 98/68, International Monetary Fund.
  14. Levine, Ross, 1996. "Financial development and economic growth : views and agenda," Policy Research Working Paper Series 1678, The World Bank.
  15. Lucas, Robert E, Jr, 1980. "Equilibrium in a Pure Currency Economy," Economic Inquiry, Western Economic Association International, vol. 18(2), pages 203-20, April.
  16. N. Gregory Mankiw & David Romer & David N. Weil, 1990. "A Contribution to the Empirics of Economic Growth," NBER Working Papers 3541, National Bureau of Economic Research, Inc.
  17. Gillman, Max & Nakov, Anton, 2005. "Granger Causality of the Inflation-Growth Mirror in Accession Countries," CEPR Discussion Papers 4845, C.E.P.R. Discussion Papers.
  18. Levine, Ross, 1992. "Financial intermediary services and growth," Journal of the Japanese and International Economies, Elsevier, vol. 6(4), pages 383-405, December.
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