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The Cash-in-Advance Constraint in Monetary Growth ModelsBurkhard HeerUniversity of Augsburg; CESifo (Center for Economic Studies and Ifo Institute for Economic Research) Alfred MaussnerUniversity of Augsburg - Faculty of Business and Economics November 29, 2011 CESifo Working Paper Series No. 3647 Abstract: In most monetary models of economic growth, higher long-run inflation is associated with a decline in the growth rate and employment. We show that this result is sensitive with respect to the specification of the cash-in-advance constraint. We consider three types of endogenous growth models: the AK-model, the Lucas (1990) supply-side model, and the two-sector model of Jones and Manuelli (1995). With the standard cash-in-advance constraint on consumption, higher inflation results in lower growth and employment in all three models, while, in the cash-credit good economy of Dotsey and Ireland (1996), the effect is the exact opposite.
Number of Pages in PDF File: 45 Keywords: inflation, growth, costly credit, search unemployment JEL Classification: O420 working papers seriesDate posted: November 29, 2011Suggested CitationContact Information
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