 Interpreting monetary stabilization in a growth model with credit goods productionS. Aiyagari and Zvi Eckstein () No 525, Working Papers from Federal Reserve Bank of Minneapolis Abstract: This paper is motivated by observations concerning the size of the banking sector and the growth rate of the economy before and after successful stabilizations of high inflations. The facts suggest that the relative size of the banking sector increases during a period of accelerating inflation and decreases immediately following a successful monetary stabilization. Furthermore, the GDP growth rate is lower during the high inflation period than after stabilization. The goal of this paper is to develop a monetary growth model which is qualitatively consistent with these observations. The model we use is a variant of the Lucas and Stokey (1987) model of cash and credit goods. The main innovation in our model is that while cash goods and credit goods are perfect substitutes in consumption we posit different technologies for their production. We show that the model's predictions on the impact of a permanent stabilization are consistent with the main real and monetary observations on high inflation countries. Keywords: Economic; stabilization (search for similar items in EconPapers) Published in Financial factors in economic stabilization and growth (1996, pp. 197-219) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmwp:525 Access Statistics for this paper More papers in Working Papers from Federal Reserve Bank of Minneapolis Contact information at EDIRC. |
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