Growth Dynamics, Multiple Equilibria, and Local Indeterminacy in an Endogenous Growth Model of Money, Banking and Inflation Targeting

Rangan Gupta and Philton Makena ()
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Philton Makena: Department of Economics, University of Pretoria, Pretoria, South Africa

No 201960, Working Papers from University of Pretoria, Department of Economics

Abstract: We develop an overlapping generations monetary endogenous growth (generated by productive public expenditures) model with inflation targeting, characterized by relocation shocks for young agents, which in turn generates a role for money (even in the presence of the return-dominating physical capital) and financial intermediaries. Based on this model, we show that growth dynamics emerge with a S-shaped growth path producing three equilibria. The low and high-growth equilibria are stable, but locally indeterminate, while the medium-growth equilibrium is unstable. Since, government expenditure is productive in our model, a higher inflation-target would translate into higher growth, but under multiple equilibria, this is not necessarily always the case.

Keywords: Endogenous Growth; Inflation Targeting; Growth Dynamics (search for similar items in EconPapers)
JEL-codes: C62 O41 O42 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2019-08
New Economics Papers: this item is included in nep-cba, nep-dge, nep-fdg, nep-gro, nep-mac and nep-mon
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Journal Article: Growth Dynamics, Multiple Equilibria, and Local Indeterminacy in an Endogenous Growth Model of Money, Banking and Inflation Targeting (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:201960

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