Can growth-enhanced monetary policy improve welfare when people seek social status?

Hsiu-Yun Lee, Yu-Lin Wang () and Wen-Ya Chang

Journal of Economics, 2013, vol. 110, issue 3, 257-272

Abstract: This paper examines the growth and welfare effects from an increase in the rate of money supply in an Ak type growth model with a relative wealth-enhanced social status motive, production externalities, and liquidity constraints. When only consumption is constrained by liquidity, fast money supply can hasten output growth unless seigniorage revenue is wasted and production externalities do not exist. We find that even though money growth normally promotes economic growth, it does not improve welfare when capital stock is over-accumulated. In general, an optimal monetary policy minimizes seigniorage. Our results also conclude that the optimal monetary policy rarely follows the Friedman rule. Copyright Springer-Verlag Wien 2013

Keywords: Wealth-enhanced social status; Production externalities; Cash-in-advance constraint; Monetary policy; O42; E52 (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:kap:jeczfn:v:110:y:2013:i:3:p:257-272

DOI: 10.1007/s00712-013-0350-8

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