Investment Adjustment Costs and Growth Dynamics

Rangan Gupta and Wei Ma ()
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Wei Ma: Center for Economic Research, Shandong University, Jinan, 250100, China

No 202537, Working Papers from University of Pretoria, Department of Economics

Abstract: We develop a monetary endogenous growth overlapping generations model characterized by investment adjustment costs as a negative function of productive government expenditures, and an inflation-targeting central bank. We show that growth dynamics arise, otherwise not possible in a standard monetary endogenous growth model with a money growth-rule and an exogenous adjustment cost parameter. Furthermore, hinging crucially on the strength of the response of the adjustment cost to productive public spending, single or multiple equilibria emerge, with the high-growth (low-growth) equilibrium in the latter case being stable (unstable), but locally indeterminate (locally determinate).

Keywords: Supply Investment adjustment costs; endogenous growth; inflation-targeting; growth dynamics (search for similar items in EconPapers)
JEL-codes: E22 E58 O42 (search for similar items in EconPapers)
Pages: 7 pages
Date: 2025-09
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