Money and Endogenous Growth in a Cash-in-Advance Model with Social Status

Hung-Ju Chen and Jang-Ting Guo

No 200906, Working Papers from University of California at Riverside, Department of Economics

Abstract: Motivated by the substantial increase of nominal money supply in the U.S. economy since late 2008, this paper examines the equilibrium growth effect of money/inflation within a standard one-sector AK model of endogenous growth with wealth-enhanced preferences for social status and the most generalized cash-in-advance constraint. We show that the sign for the correlation between money and output growth depends crucially on (i) the liquidity-constrained ratio of consumption to investment, and (ii) how the shadow price of physical capital responds to a change in the monetary growth rate. This money-growth correlation, as well as the growth effect of social status, turns out to be closely related to the local stability properties of the economy's balanced growth path(s).

Keywords: Money; Endogenous Growth; Cash-in-Advance Constraint; Social Status; In- determinacy (search for similar items in EconPapers)
JEL-codes: E52 O42 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2009-06, Revised 2009-06
New Economics Papers: this item is included in nep-cba, nep-dge, nep-fdg, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:ucr:wpaper:200906

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