A note on growth and inflation

Pedro Cavalcanti Ferreira

No 319, FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) from EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil)

Abstract: A simple exercise on growth and inflationary financing of public expenditures is presented in this note. In a parameterized overlapping generations mode1 where government expenses positivc1y affects the growth rate of human capital, steady state capital and output increase with inflation, reproducing the so called Tobin effect. For large inflation rates, however, government authorities cannot affect real variables and there are only nominal effects. It is also shown that the optimal policy implies some inflation but not growth maximization.

Date: 1997-12
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