Liquidity, innovation and growth

Aleksander Berentsen, Mariana Rojas-Breu and Shouyong Shi

No 441, IEW - Working Papers from Institute for Empirical Research in Economics - University of Zurich

Abstract: Many countries simultaneously suffer from high inflation, low growth and poorly developed financial sectors. In this paper, we integrate a microfounded model of money and finance into a model of endogenous growth to examine the effects of inflation on welfare, growth and the size of the financial sector. A novel feature is that the innovation sector is decentralized. Financial intermediaries arise endogenously to provide liquidity to this sector. Consistent with the data but in contrast to previous work, reducing inflation generates large growth gains. These large gains cannot be easily reproduced by imposing a cash-in-advance constraint in the innovation sector.

Keywords: Inflation; growth; search; innovation; credit (search for similar items in EconPapers)
JEL-codes: E5 O42 (search for similar items in EconPapers)
Date: 2009-09, Revised 2012-10
New Economics Papers: this item is included in nep-cba, nep-dev, nep-dge, nep-fdg, nep-ino, nep-mic and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27)

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https://www.zora.uzh.ch/id/eprint/51893/1/iewwp441.pdf (application/pdf)

Related works:
Journal Article: Liquidity, innovation and growth (2012)
Working Paper: Liquidity, innovation and growth (2012)
Working Paper: Liquidity, Innovation and Growth (2012)
Working Paper: Liquidity, Innovation and Growth (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:zur:iewwpx:441

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