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Dynamic Behavior of Capital Accumulation in a Cash-in-Advance Model

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  • Andrew B. Abel

Abstract

This paper analyzes the dynamic behavior of capital accumulationin Stockman's (1981) cash-in-advance model. If the cash-in-advance constraint applies only to consuittion, then money is superneutral along the transition path as well as in the long run. Alternatively, if the cash-in-advance constraint applies to gross investment as well as consumption, then a permanent increase in the rate of monetary growth reduces the steady state capital stock. The effect on the speed of adjustment depends on the sign of a certain simple function of the parameters of preferences and technology.

Suggested Citation

  • Andrew B. Abel, 1985. "Dynamic Behavior of Capital Accumulation in a Cash-in-Advance Model," NBER Working Papers 1549, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:1549 Note: EFG
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    1. Fischer, Stanley, 1979. "Capital Accumulation on the Transition Path in a Monetary Optimizing Model," Econometrica, Econometric Society, vol. 47(6), pages 1433-1439, November.
    2. Abel, Andrew B., 1987. "Optimal monetary growth," Journal of Monetary Economics, Elsevier, pages 437-450.
    3. Brock, William A., 1975. "A simple perfect foresight monetary model," Journal of Monetary Economics, Elsevier, vol. 1(2), pages 133-150, April.
    4. Stockman, Alan C., 1981. "Anticipated inflation and the capital stock in a cash in-advance economy," Journal of Monetary Economics, Elsevier, vol. 8(3), pages 387-393.
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