Money and Long-Run Growth

Jin Cao () and Gerhard Illing
Additional contact information
Gerhard Illing: LMU Munich

Chapter 2 in Money: Theory and Practice, 2019, pp 49-92 from Springer

Abstract: Abstract This chapter looks at monetary policy design from a classical, long-term perspective. We consider a dynamic growth model with flexible prices, assuming that money will not affect real variables in the long run. We introduce various frictions to provide a microfoundation for money holding and show that, formally, the role for money generated by these frictions can be captured in a quite general way by the “money in the utility function” approach. By construction, the role of monetary policy is fairly limited in that context and straightforward to characterize: Central banks should aim to implement the Friedman rule to achieve price stability (low inflation), thus minimizing distortions arising from holding money balances. We show, however, that price level and inflation are determined not just by current monetary policy, but by the expected future path of monetary policy across time and analyze conditions to rule out indeterminacy with bubbles and self-fulfilling inflationary expectations.

Date: 2019
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Chapter: Money and Long Run Growth (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:sptchp:978-3-030-19697-4_2

Ordering information: This item can be ordered from
http://www.springer.com/9783030196974

DOI: 10.1007/978-3-030-19697-4_2

Access Statistics for this chapter

More chapters in Springer Texts in Business and Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().