RANDOM MATCHING AND MONEY IN THE NEOCLASSICAL GROWTH MODEL: SOME ANALYTICAL RESULTS

Christopher Waller

Macroeconomic Dynamics, 2011, vol. 15, issue S2, 293-312

Abstract: I use the monetary version of the neoclassical growth model developed by Aruoba, Waller, and Wright [Journal of Monetary Economics (2011)] to study the properties of the model when there is exogenous growth. I first consider the planner's problem, and then the equilibrium outcome in a monetary economy. I do so by first using proportional bargaining to determine the terms of trade and then considering competitive price taking. I obtain closed-form solutions for all variables along the balanced growth path in all cases. I then derive closed-form solutions for the transition paths under the assumption of full depreciation and, in the monetary economy, a particular nonstationary interest rate policy. The key result is that inflation is damaging to per capita income levels along the balanced growth path and to short-run growth of the economy.

Date: 2011
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Working Paper: Random matching and money in the neoclassical growth model: some analytical results (2009)
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