Economic Growth, Labor Hours and Social Welfare in a Small-Open Economy:under the Regime of Inflation Rate Targeting
Date Issued
2011
Date
2011
Author(s)
Wang, Jhih-Chuen
Abstract
This paper introduces money, via the cash-in-advance mechanism, into an endogenous growth model for a small-open economy, and then uses this model to investigate properties of the dynamic equilibrium. Besides, the paper examines the effect of changing the anchor of the inflation rate on labor hours and balance growth rate. Moreover, quantitative analysis of the model is applied to explore the connection between the optimal inflation rate and the ratio of monetary wage. Lastly, we discuss the fundamentally equivalent monetary policy anchor to the inflation rate targeting.
The conclusion of this article can be summarized as follows: (1) the dynamic equilibrium is locally determinate; (2) a rise in the inflation rate cannot boost the balance growth; (3) the increase in the inflation rate has an ambiguous effect on the steady state level of labor hours; (4) the larger rise in the ratio of monetary wage expands the optimal inflation rate by a larger amount; and (5) the exchange rate targeting and domestic interest rate targeting are both fundamentally equivalent to the inflation rate targeting.
Subjects
Cash-in-advance
Endogenous growth
Inflation rate targeting
Ratio of monetary wage
Fundamental equivalence
SDGs
Type
thesis
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