 Financial Liberalization and a Possible Growth-Inflation Trade-OffIndian Economic Review, 2009, vol. 44, issue 1, 1-19 Abstract: The negative relationship between growth and inflation is well-documented in the literature. However, recent evidences tend to indicate of a possible growth-inflation trade-off. This paper provides a theoretical explanation to the above mentioned empirical contradiction. To validate our point, we develop a monetary endogenous growth model of a financially repressed small open economy in an overlapping generations framework, characterized by curb markets, productive public expenditures, capital mobility, transaction costs in domestic and foreign capital markets, and a flexible exchange rate system, and analyze the impact of financial liberalization on growth and inflation. We show that including financial repression in the model is only necessary, and not sufficient, to produce a trade-off between growth and inflation. Sufficiency, in turn, requires low transaction costs in the domestic financial market. Keywords: Financial Repression; Growth and Inflation; Unofficial Financial Markets, Monetary Policy. (search for similar items in EconPapers) There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:dse:indecr:v:44:y:2009:i:1:p:1-19 Ordering information: This journal article can be ordered from Access Statistics for this article Indian Economic Review is currently edited by Pami Dua (Editor) & Ram Singh (Associate Editor) and Sunil Kanwar More articles in Indian Economic Review from Department of Economics, Delhi School of Economics University of Delhi, Delhi 110 007. Contact information at EDIRC. |
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