Dynamic Behavior of Capital Accumulation in a Cash-in-Advance Model

Abstract

This paper analyzes the dynamic behavior of capital accumulationin Stockman's (1981) cash-in-advance model. If the cash-in-advance constraint applies only to consuittion, then money is superneutral along the transition path as well as in the long run. Alternatively, if the cash-in-advance constraint applies to gross investment as well as consumption, then a permanent increase in the rate of monetary growth reduces the steady state capital stock. The effect on the speed of adjustment depends on the sign of a certain simple function of the parameters of preferences and technology.