Money and Growth Revisited

George Alogoskoufis and Frederick (Rick) van der Ploeg

No 532, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The Ramsey-Romer model of endogenous growth is extended to allow for holdings of real money balances and government debt as well as capital and for non-interconnected generations of households. Tax-financed increases in government consumption and debt depress growth prospects and boost inflation, as long as a positive birth rate ensures that future taxes are shouldered by future, yet unborn, generations. Debt-financed increases in government consumption depress growth and boost inflation even more. Money-financed increases in government consumption depress growth less but increase inflation by more. Giving subsidies through an increase in monetary growth is non-neutral, since this increases real growth and thus inflation increases by a lesser amount than monetary growth. Bond-financed increases in monetary growth lead to a larger increase in real growth and a smaller increase in inflation. If there are costs of adjustment for investment, cuts in monetary growth and increases in government debt and government consumption induce an increase in the real interest rate.

Keywords: Endogenous Growth; Overlapping Generations; Population Growth; Ricardian Equivalence (search for similar items in EconPapers)
Date: 1991-03
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Related works:
Working Paper: Money and Growth Revisited (1991)
Working Paper: Money and growth revisited (1991)
Working Paper: Money and growth revisited (1991)
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