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Deficit, monetization, and economic growth: a case for multiplicity and indeterminacy

Maxime Menuet, Alexandru Minea and Patrick Villieu ()

Economic Theory, 2018, vol. 65, issue 4, No 1, 819-853

Abstract: Abstract This paper develops an original analysis of deficit monetization in a growth model with transaction costs, in which economic growth interacts with productive public expenditures. This interaction generates two positive balanced growth paths (BGP) in the long run: a high BGP and a low BGP. The transitional dynamics show that multiplicity cannot be rejected if transaction costs affect both consumption and investment expenditures, with possible indeterminacy of the high BGP. Importantly, deficit monetization is shown to reduce the parameter space producing indeterminacy.

Keywords: Endogenous growth; Deficit; Monetization; Indeterminacy; Public debt (search for similar items in EconPapers)
JEL-codes: E41 E52 E62 H62 H63 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1007/s00199-017-1040-5

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