The Cash-In-Advance Constraint in Monetary Growth Models

Burkhard Heer and Alfred Maussner ()

No 3647, CESifo Working Paper Series from CESifo

Abstract: In most monetary models of economic growth, higher long-run inflation is associated with a decline in the growth rate and employment. We show that this result is sensitive with respect to the specification of the cash-in-advance constraint. We consider three types of endogenous growth models: 1) the AK-model, 2) the Lucas (1990) supply-side model, and 3) the two-sector model of Jones and Manuelli (1995). With the standard cash-in-advance constraint on consumption, higher inflation results in lower growth and employment in all three models, while, in the cash-credit good economy of Dotsey and Ireland (1996), the effect is the exact opposite.

Keywords: inflation; growth; costly credit; search unemployment (search for similar items in EconPapers)
JEL-codes: O42 (search for similar items in EconPapers)
Date: 2011
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