Money, social status and endogenous growth in a generalized cash-in-advance model
Journal
Pacific Economic Review
Journal Volume
16
Journal Issue
3
Pages
267-284
Date Issued
2011
Author(s)
Abstract
This paper analytically examines the equilibrium growth effect of money/inflation in a standard one-sector AK model of endogenous growth with the most generalized cash-in-advance constraint and relative wealth-induced preferences for social status. We show that on the economy's unique balanced growth equilibrium path, the sign of the correlation between money and output growth depends crucially on: (i) the intertemporal elasticity of substitution in consumption; and (ii) the liquidity-constrained ratio of consumption to investment expenditure. Moreover, our model economy always exhibits a positive output-growth effect in response to changes of the strength for social status. We also undertake numerical experiments to assess the quantitative importance of our theoretical results under an empirically plausible set of parameters. © 2011 The Authors. Pacific Economic Review © 2011 Blackwell Publishing Asia Pty Ltd.
SDGs
Other Subjects
correlation; economic analysis; economic growth; endogenous growth; experimental study; financial market; growth rate; inflation; investment; model test; model validation; parameterization; social status; theoretical study
Type
journal article