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Dynamics in a Transactions-Based Monetary Growth Model

Author

Listed:
  • Sailesh K. Jha

    (Asian Development Bank, Manila, Phillipines)

  • Ping Wang

    () (Department of Economics, Vanderbilt University)

  • Chong K.Yip

    (Chinese University of Hong Kong, Shatin, Hong Kong)

Abstract

This paper examines the dynamic properties of a monetary endogenous growth model in which money is introduced into the system via a transactions-cost technology. A monetary equilibrium that either satisfires the Friedman rule of the optimum quantity of money or accommodates the zero-inflation-rate policy is dynamically unstable. In a Cagan-like hyperinflationary environment, two possibilities arise: the monetary equilibrium may be unstable or exhibit dynamic indeterminacy in which a variety of equilibrium outcomes emerge in transition. The rate of monetary expansion, the relative magnitudes of the intertemporal elasticity of substitution and the production technological parameter are crucial for determining the stability property of the model. We characterize completely the transitional dynamics in the saddle-path case and generalize the basic model to allow for a convex production technology and an endogenous labor-leisure tradeoff to examine the robustness of the main findings.

Suggested Citation

  • 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.
  • Handle: RePEc:van:wpaper:0005
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Buiter, Willem H. & Sibert, Anne C., 2007. "Deflationary Bubbles," Macroeconomic Dynamics, Cambridge University Press, vol. 11(04), pages 431-454, September.
    2. Seiya Fujisaki & Kazuo Mino, 2010. "Long-Run Impacts of Inflation Tax with Endogenous Capital Depreciation," Economics Bulletin, AccessEcon, vol. 30(1), pages 808-816.
    3. Luigi Bonatti, 2003. "'Soft' growth and the role of monetary policy in selecting the long-run equilibrium path," Working Papers (-2012) 0306, University of Bergamo, Department of Economics.
    4. Seiya Fujisaki & Kazuo Mino, 2009. "Long-Run Impacts of Inflation Tax in the Presence of Multiple Capital Goods," Economics Bulletin, AccessEcon, vol. 29(3), pages 1644-1652.
    5. Itaya, Jun-Ichi & Mino, Kazuo, 2007. "Technology, Preference Structure, And The Growth Effect Of Money Supply," Macroeconomic Dynamics, Cambridge University Press, vol. 11(05), pages 589-612, November.
    6. Dimitrios Varvarigos, 2006. "Inflation, Variability, and the Evolution of Human Capital in a Model with Transactions Costs," Discussion Paper Series 2006_16, Department of Economics, Loughborough University, revised Jul 2006.
    7. Seiya Fujisaki & Kazuo Mino, 2010. "Growth and Distributional Effects of Inflation with Progressive Taxation," Economics Bulletin, AccessEcon, vol. 30(4), pages 3055-3065.
    8. Heer, Burkhard & Maußner, Alfred, 2015. "The Cash-In-Advance Constraint In Monetary Growth Models With Labor Market Search," Macroeconomic Dynamics, Cambridge University Press, vol. 19(01), pages 144-166, January.
    9. Al-Jarhi, Mabid, 2000. "السياسات النقدية في إطار إسلامي
      [Monetary Policy in an Islamic Framework]
      ," MPRA Paper 67547, University Library of Munich, Germany, revised 2002.
    10. Shu-Hua Chen, 2015. "Fiscal and Monetary Policies in a Transactions-Based Endogenous Growth Model with Imperfect Competition," The Japanese Economic Review, Japanese Economic Association, vol. 66(1), pages 89-111, March.
    11. Chang, Wen-ya & Chen, Ying-an & Chang, Juin-jen, 2013. "Growth and welfare effects of monetary policy with endogenous fertility," Journal of Macroeconomics, Elsevier, vol. 35(C), pages 117-130.
    12. Varvarigos, Dimitrios, 2008. "Inflation, variability, and the evolution of human capital in a model with transactions costs," Economics Letters, Elsevier, vol. 98(3), pages 320-326, March.
    13. Suen, Ming-Hon & Yip, Chong K., 2005. "Superneutrality, indeterminacy and endogenous growth," Journal of Macroeconomics, Elsevier, vol. 27(4), pages 579-595, December.
    14. Wojciech Charemza & Yuriy Kharin & Vladislav Maevskiy, 2012. "Bilinear forecast risk assessment for non-systematic inflation: Theory and evidence," Discussion Papers in Economics 12/22, Department of Economics, University of Leicester.
    15. Lai, Ching-Chong & Chin, Chi-Ting, 2013. "Monetary Rules And Endogenous Growth In An Open Economy," Macroeconomic Dynamics, Cambridge University Press, vol. 17(02), pages 431-463, March.

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