Growth and Inflation in a Monetary “Selling-Cost” Model

Stefano Bosi () and Michel Guillard ()
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Stefano Bosi: Epee, University of Evry

No 00-05, Documents de recherche from Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne

Abstract: This paper presents a simple monetary “selling-cost” model in the spirit of Dornbusch and Frenkel [1973] who assume that there are real costs in terms of resources to “delivering” output to consumers and that producers may reduce these transaction costs by accepting money in exchange for products. Within an exogenous growth framework, this assumption easily justifies the existence of a negative relationship between i) inflation and transition growth in the short run and ii) inflation and output in the long run. Within an endogenous growth framework, this kind of transaction costs allows the existence of multiple steady states when monetary authorities control the rate of money creation. Under a mild assumption concerning the specification of the transaction costs, two stationary growth rates arise and the higher one is indeterminate. When indeterminacy occurs the monetary growth rate displays a positive impact on the balanced growth rate. Moreover the higher growth rate is recognized to be superior in terms of welfare. Eventually we investigate the role of monetary and fiscal policy to coordinate agents and drive the economy towards virtuous growth rates.

Keywords: Transaction costs; Indeterminacy; Monetary policy; Fiscal theory of the price level (search for similar items in EconPapers)
JEL-codes: E31 E52 E63 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2000
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