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Investment Adjustment Costs and Growth Dynamics

Author

Listed:
  • Rangan Gupta

    (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa)

  • Wei Ma

    (Center for Economic Research, Shandong University, Jinan, 250100, China)

Abstract

We develop a monetary endogenous growth overlapping generations model characterized by investment adjustment costs as a negative function of productive government expenditures, and an inflation-targeting central bank. We show that growth dynamics arise, otherwise not possible in a standard monetary endogenous growth model with a money growth-rule and an exogenous adjustment cost parameter. Furthermore, hinging crucially on the strength of the response of the adjustment cost to productive public spending, single or multiple equilibria emerge, with the high-growth (low-growth) equilibrium in the latter case being stable (unstable), but locally indeterminate (locally determinate).

Suggested Citation

  • Rangan Gupta & Wei Ma, 2025. "Investment Adjustment Costs and Growth Dynamics," Working Papers 202537, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:202537
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    Keywords

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    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • O42 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models

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