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Money and Endogenous Growth in a Cash-in-Advance Model with Social Status

  • Hung-Ju Chen

    (Department of Economics, National Taiwan University)

  • Jang-Ting Guo

    ()

    (Department of Economics, University of California Riverside)

Motivated by the substantial increase of nominal money supply in the U.S. economy since late 2008, this paper examines the equilibrium growth effect of money/inflation within a standard one-sector AK model of endogenous growth with wealth-enhanced preferences for social status and the most generalized cash-in-advance constraint. We show that the sign for the correlation between money and output growth depends crucially on (i) the liquidity-constrained ratio of consumption to investment, and (ii) how the shadow price of physical capital responds to a change in the monetary growth rate. This money-growth correlation, as well as the growth effect of social status, turns out to be closely related to the local stability properties of the economy's balanced growth path(s).

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File URL: http://economics.ucr.edu/repec/ucr/wpaper/09-06.pdf
File Function: First version, 2009
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Paper provided by University of California at Riverside, Department of Economics in its series Working Papers with number 200906.

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Length: 18 pages
Date of creation: Jun 2009
Date of revision: Jun 2009
Handle: RePEc:ucr:wpaper:200906
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  1. Liutang Gong & Heng-fu Zou, 2001. "Money, social status, and capital accumulation in a cash-in-advance model," CEMA Working Papers 55, China Economics and Management Academy, Central University of Finance and Economics.
  2. Christiane Clemens, 2004. "Status, Risk-Taking and Intertemporal Substitution in an Endogenous Growth Model," Journal of Economics, Springer, vol. 83(2), pages 103-123, November.
  3. Abel, Andrew B., 1985. "Dynamic behavior of capital accumulation in a cash-in-advance model," Journal of Monetary Economics, Elsevier, vol. 16(1), pages 55-71, July.
  4. Heng-fu Zou, 1995. "The spirit of capitalism and savings behavior," Journal of Economic Behavior & Organization, Elsevier, vol. 28(1), pages 131-143, September.
  5. Heng-fu Zou, 1998. "The spirit of capitalism, social status, money, and accumulation," CEMA Working Papers 99, China Economics and Management Academy, Central University of Finance and Economics.
  6. Ming Hon Suen & Chong K. Yip, 2001. "Superneutrality, Indeterminacy, and Endogenous Growth," Departmental Working Papers _136, Chinese University of Hong Kong, Department of Economics.
  7. Bakshi, Gurdip S & Chen, Zhiwu, 1996. "The Spirit of Capitalism and Stock-Market Prices," American Economic Review, American Economic Association, vol. 86(1), pages 133-57, March.
  8. Dornbusch, Rudiger & Frenkel, Jacob A, 1973. "Inflation and Growth: Alternative Approaches," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 5(1), pages 141-56, Part I Fe.
  9. Heng-fu Zou, 1991. "The spirit of capitalism and long-run growth," Policy Research Working Paper Series 630, The World Bank.
  10. Corneo, Giacomo & Jeanne, Olivier, 1997. "On relative wealth effects and the optimality of growth," Economics Letters, Elsevier, vol. 54(1), pages 87-92, January.
  11. Yip, C.K. & Wang, P., 1989. "Alternative Approaches To Money And Growth," Papers 8-89-4, Pennsylvania State - Department of Economics.
  12. Chang, Wen-ya & Hsieh, Yi-ni & Lai, Ching-chong, 2000. "Social status, inflation, and endogenous growth in a cash-in-advance economy," European Journal of Political Economy, Elsevier, vol. 16(3), pages 535-545, September.
  13. Fisher, Walter H. & Hof, Franz X., 2005. "Status seeking in the small open economy," Journal of Macroeconomics, Elsevier, vol. 27(2), pages 209-232, June.
  14. Hung-Ju Chen & Jang-Ting Guo, 2009. "Social Status And The Growth Effect Of Money," The Japanese Economic Review, Japanese Economic Association, vol. 60(1), pages 133-141.
  15. Chang, Wen-ya & Tsai, Hsueh-fang & Lai, Ching-chong, 2004. "Taxation, growth, and the spirit of capitalism," European Journal of Political Economy, Elsevier, vol. 20(4), pages 1011-1025, November.
  16. 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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