Inflation uncertainty and growth in a simple monetary model

Michael Dotsey and Pierre Daniel Sarte

No 97-05, Working Paper from Federal Reserve Bank of Richmond

Abstract: This paper analyzes the effects of inflation variability on economic growth in a model where money is introduced via a cash-in-advance constraint. In this setting, we find that inflation adversely affects long-run growth, even when the cash-in-advance constraint applies only to consumption. At the same time, we find that inflation and growth are positively related in the short-run. In addition, variability tends to increase average growth through a precautionary savings motive. Since inflation and inflation variability tend to be highly correlated, this latter effect attenuates the negative long-run relationship between inflation and real growth. It also provides a partial rational for the notorious lack of robustness in cross-country regressions of growth and inflation.

Keywords: Inflation (Finance); Monetary policy (search for similar items in EconPapers)
Date: 1997
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.richmondfed.org/publications/research/working_papers/1997/wp_97-5.cfm (text/html)
https://www.richmondfed.org/-/media/RichmondFedOrg ... /1997/pdf/wp97-5.pdf Full text (application/pdf)

Related works:
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:fip:fedrwp:97-05

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Working Paper from Federal Reserve Bank of Richmond Contact information at EDIRC.
Bibliographic data for series maintained by Christian Pascasio ().