Inflation and Growth in an Open Economy

Tapio Palokangas

Economica, 1997, vol. 64, issue 255, 509-518

Abstract: This paper examines the relationship between growth and inflation in an open economy where private agents can transfer resources abroad. To obtain endogenous growth, we assume that the international credit market is imperfect. We show that when the governments behave rationally the growth and inflation rates should not be correlated, and that the optimal inflation rate can be found by setting the interest rate elasticity of money holdings equal to the tax rate elasticity of the tax base.

Date: 1997
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Persistent link: https://EconPapers.repec.org/RePEc:bla:econom:v:64:y:1997:i:255:p:509-518

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