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Technology, Preference Structure, and the Growth Effect of Money Supply

  • Jun-ichi Itaya


    (Graduate School of Economics and Business Administration, Hokkaido University)

  • Kazuo Mino


    (Graduate School of Economies, Osaka University)

This paper studies the growth effect of money supply in the presence of increasing returns and endogenous labor supply. By using a simple model of endogenous growth with a cash-in-advance constraint, it is shown that the growth effect of money supply depends on the specifications of preference structures as well as on the production technology. Either if the production technology exhibits strong non-convexity or if the utility function has a high elasticity of intertemporal substitution, then there may exist dual balanced-growth equilibria and the impact of a change in money growth depends on which steady state is realized in the long run. It is also shown that there is no systematic relationship between the growth effect of money supply and local determinacy of the balanced growth path.

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Paper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 05-35.

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Length: 30 pages
Date of creation: Dec 2005
Date of revision:
Handle: RePEc:osk:wpaper:0535
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  1. Jess Benhabib & Stephanie Schmitt-Grohe & Martin Uribe, 1999. "Monetary Policy and Multiple Equilibria," Departmental Working Papers 199914, Rutgers University, Department of Economics.
  2. Sailesh K. Jha & Ping Wang & Chong K.Yip, 2000. "Dynamics in a Transactions-Based Monetary Growth Model," Vanderbilt University Department of Economics Working Papers 0005, Vanderbilt University Department of Economics.
  3. Michael Bruno & William Easterly, 1996. "Inflation and growth: in search of a stable relationship," Proceedings, Federal Reserve Bank of St. Louis, issue May, pages 139-146.
  4. Jones, Larry E. & Manuelli, Rodolfo E., 1995. "Growth and the effects of inflation," Journal of Economic Dynamics and Control, Elsevier, vol. 19(8), pages 1405-1428, November.
  5. Kiminori Matsuyama, 1988. "Endogenous Price Fluctuations in an Optimizing Model of a Monetary Economy," Discussion Papers 813, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Bennett, Rosalind L. & Farmer, Roger E. A., 2000. "Indeterminacy with Non-separable Utility," Journal of Economic Theory, Elsevier, vol. 93(1), pages 118-143, July.
  7. Jun-Ichi Itaya & Kazuo Mino, 2003. "Inflation, Transaction Costs and Indeterminacy in Monetary Economies with Endogenous Growth," Economica, London School of Economics and Political Science, vol. 70(279), pages 451-470, 08.
  8. Benhabib, Jess & Farmer, Roger E.A., 1991. "Indeterminacy and Increasing Returns," Working Papers 91-59, C.V. Starr Center for Applied Economics, New York University.
  9. Kenneth J. Matheny, 1998. "Non-neutral responses to money supply shocks when consumption and leisure are Pareto substitutes," Economic Theory, Springer, vol. 11(2), pages 379-402.
  10. Carlstrom, Charles T. & Fuerst, Timothy S., 2005. "Investment and interest rate policy: a discrete time analysis," Journal of Economic Theory, Elsevier, vol. 123(1), pages 4-20, July.
  11. Pecorino, Paul, 1995. "Inflation, human capital accumulation and long-run growth," Journal of Macroeconomics, Elsevier, vol. 17(3), pages 533-542.
  12. Marquis, Milton H & Reffett, Kevin L, 1995. "The Inflation Tax in a Convex Model of Equilibrium Growth," Economica, London School of Economics and Political Science, vol. 62(245), pages 109-21, February.
  13. Kazuo Mino & Akihisa Shibata, 2000. "Growth and Welfare Effects of Monetary Expansion in an Overlapping-generations Economy," The Japanese Economic Review, Japanese Economic Association, vol. 51(3), pages 407-430, 09.
  14. Howitt, P., 1990. "Money And Growth Revisited," UWO Department of Economics Working Papers 9014, University of Western Ontario, Department of Economics.
  15. De Gregorio, Jose, 1993. "Inflation, taxation, and long-run growth," Journal of Monetary Economics, Elsevier, vol. 31(3), pages 271-298, June.
  16. repec:ebl:ecbull:v:5:y:2004:i:6:p:1-8 is not listed on IDEAS
  17. Mino, Kazuo, 1997. "Long-Run Effects of Monetary Expansion in a Two-Sector Model of Endogenous Growth," Journal of Macroeconomics, Elsevier, vol. 19(4), pages 635-655, October.
  18. Marquis, M.H. & Reffett, K.L., 1991. "Real Interest and Endogenous Growth in a Monetary Economy," Working Papers 1991_06_02, Department of Economics, Florida State University.
  19. Marquis, Milton H. & Reffett, Kevin L., 1991. "Real interest rates and endogenous growth in a monetary economy," Economics Letters, Elsevier, vol. 37(2), pages 105-109, October.
  20. Temple, Jonathan, 2000. " Inflation and Growth: Stories Short and Tall," Journal of Economic Surveys, Wiley Blackwell, vol. 14(4), pages 395-426, September.
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