Liquidity, innovation and growth

Aleksander Berentsen, Mariana Rojas Breu and Shouyong Shi
Authors registered in the RePEc Author Service: Mariana Rojas-Breu

Journal of Monetary Economics, 2012, vol. 59, issue 8, 721-737

Abstract: Many countries simultaneously suffer from high inflation, low growth and poorly developed financial sectors. In this paper, we integrate a microfounded model of money and finance into a model of endogenous growth to examine the effects of inflation on welfare, growth and the size of the financial sector. A novel feature is that the innovation sector is decentralized. Financial intermediaries arise endogenously to provide liquidity to this sector. Consistent with the data but in contrast to previous work, reducing inflation generates large growth gains. These large gains cannot be easily reproduced by imposing a cash-in-advance constraint in the innovation sector.

Date: 2012
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Citations: View citations in EconPapers (24)

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Related works:
Working Paper: Liquidity, innovation and growth (2012)
Working Paper: Liquidity, Innovation and Growth (2012)
Working Paper: Liquidity, innovation and growth (2012)
Working Paper: Liquidity, Innovation and Growth (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:59:y:2012:i:8:p:721-737

DOI: 10.1016/j.jmoneco.2012.10.005

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