Social status and the growth effect of money
Journal
Japanese Economic Review
Journal Volume
60
Journal Issue
1
Pages
133-141
Date Issued
2009
Author(s)
Abstract
It has been shown that in a standard one-sector AK model of endogenous growth with wealth induced preferences for social status, the economy's growth rates of real output and nominal money supply are positively related when the cash in advance constraint is applied solely to the household's consumption purchases. However, a positive output growth effect of money/inflation is not consistent with the existing empirical evidence. We show that when gross investment must be financed by real money balances as well, this result is overturned, i.e. higher inflation is detrimental to economic growth, because of a dominating portfolio substitution effect. © Journal compilation © 2009 Japanese Economic Association.
SDGs
Other Subjects
economic growth; economic theory; endogenous growth; inflation; social status
Type
journal article