TECHNOLOGY, PREFERENCE STRUCTURE, AND THE GROWTH EFFECT OF MONEY SUPPLY

Jun-ichi Itaya () and Kazuo Mino

Macroeconomic Dynamics, 2007, vol. 11, issue 5, 589-612

Abstract: This paper studies the growth effect of money supply in the presence of increasing returns and endogenous labor supply. By using a simple model of endogenous growth with a cash-in-advance constraint, it is shown that the growth effect of money supply depends on the specifications of preference structures as well as of the production technology. Either if the production technology exhibits strong nonconvexity or if the utility function has a high elasticity of intertemporal substitution, then there may exist dual balanced-growth equilibria and the impact of a change in money growth depends on which steady state is realized in the long run. It is also shown that there is no systematic relationship between the growth effect of money supply and local determinacy of the balanced growth path.

Date: 2007
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Working Paper: Technology, Preference Structure, and the Growth Effect of Money Supply (2005)
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