Inflation, Volatile Public Spending, and Endogenously Sustained Growth

Dimitrios Varvarigos ()
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Dimitrios Varvarigos: Department of Economics - Department of Economics

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Abstract: I construct a model of an economy whose government finances volatile public spending via money creation. The model jointly accounts for the emergence of some well-known empirical observations. Specifically, it predicts a negative correlation between output growth and policy volatility. Furthermore, given that both the mean and the variance of the inflation rate are elevated by fluctuations in public spending, the model provides a novel theoretical justification for the simultaneous negative correlation of long-run growth with both average inflation and inflation variability. The model also supports the view that policy volatility reduces social welfare.

Keywords: E13; E31; O42; Growth; Inflation; Seignorage; Volatility (search for similar items in EconPapers)
Date: 2010-09-17
Note: View the original document on HAL open archive server: https://hal.science/hal-00732760
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Citations: View citations in EconPapers (5)

Published in Journal of Economic Dynamics and Control, 2010, 34 (10), pp.1893. ⟨10.1016/j.jedc.2010.05.014⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00732760

DOI: 10.1016/j.jedc.2010.05.014

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