The Cash-in-Advance Constraint in Monetary Growth Models

45 Pages Posted: 29 Nov 2011

See all articles by Burkhard Heer

Burkhard Heer

University of Augsburg; CESifo (Center for Economic Studies and Ifo Institute)

Alfred Maussner

University of Augsburg - Faculty of Business and Economics

Date Written: November 29, 2011

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.

Keywords: inflation, growth, costly credit, search unemployment

JEL Classification: O420

Suggested Citation

Heer, Burkhard and Maussner, Alfred, The Cash-in-Advance Constraint in Monetary Growth Models (November 29, 2011). CESifo Working Paper Series No. 3647. Available at SSRN: https://ssrn.com/abstract=1965940

Burkhard Heer (Contact Author)

University of Augsburg ( email )

Universitätsstr. 2
Augsburg, 86159
Germany

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Alfred Maussner

University of Augsburg - Faculty of Business and Economics ( email )

Universitaetsstr. 16
86135 Augsburg
Germany
+49 821 598 4187 (Phone)
+49 821 598 4231 (Fax)

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