Wealth effects in a cash-in-advance economy

Eric Kam () and Paul Missios

Economics Bulletin, 2003, vol. 5, issue 2, 1-7

Abstract: This paper examines the monetary growth implications of combining Stockman's cash-in-advance constraint on consumption and capital goods and an endogenous rate of time preference that is an increasing function of real wealth. The cash-in-advance constraint imposes an investment tax that reduces steady state consumption and capital. However, endogenous time preference wealth effects link the real and monetary sectors to yield a Mundell-Tobin effect. Cash-in-advance constraint effects dominate endogenous time preference wealth effects so that monetary growth reduces steady state capital and consumption.

Keywords: cash-in-advance; constraints (search for similar items in EconPapers)
JEL-codes: E0 E4 (search for similar items in EconPapers)
Date: 2003-03-30
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Citations: View citations in EconPapers (2)

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