Growth Dynamics, Multiple Equilibria, and Local Indeterminacy in an Endogenous Growth Model of Money, Banking and Inflation Targeting

Rangan Gupta and Philton Makena
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Philton Makena: Department of Economics, University of Pretoria, Pretoria 0002, South Africa

Economies, 2020, vol. 8, issue 1, 1-14

Abstract: We develop an overlapping generations monetary endogenous growth (generated by productive public expenditures) model with inflation targeting, characterized by relocation shocks for young agents, which in turn generates a role for money (even in the presence of the return-dominating physical capital) and financial intermediaries. Based on this model, we show that growth dynamics emerge with a S-shaped growth path producing three equilibria. The low and high-growth equilibria are stable, but locally indeterminate, while the medium-growth equilibrium is unstable. Since, government expenditure is productive in our model, a higher inflation-target would translate into higher growth, but under multiple equilibria, this is not necessarily always the case.

Keywords: endogenous growth; inflation targeting; growth dynamics (search for similar items in EconPapers)
JEL-codes: E F I J O Q (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Growth Dynamics, Multiple Equilibria, and Local Indeterminacy in an Endogenous Growth Model of Money, Banking and Inflation Targeting (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:gam:jecomi:v:8:y:2020:i:1:p:22-:d:334015

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