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Money and economic growth

Bhattarai, Keshab

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Abstract

We study results of the cash in advance and money in utility models about the nature of fluctuations in economic activities and welfare in three interdependent economies. When the money is exogenously introduced in the form of cash in advance, it serves as a medium of exchange the rate of return in real and nominal assets become equal. Idiosyncratic technological shocks generate fluctuations in the growth rates of capital, output, prices, money, consumption, investment, labour supply and lifetime utilities of households. When households have money in their utility functions, the stock of money in excess of that required for transactions causes inflation and reduces the amount of capital stock and output in these economies. Both CIA and MIU models support for a steady growth rate of money according to the smooth growth rate of output. While the inflation targeting by manipulating the interest rates for macroeconomic stability are theoretically prudent policy moves it is impossible for central banks to eliminate business cycles that arise from shocks to production technology or structural features of the economy.

Journal Article Type Article
Publication Date 2014-06
Journal The journal of economic asymmetries
Print ISSN 1703-4949
Electronic ISSN 1703-4949
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 11
Pages 8-18
Institution Citation Bhattarai, K. (2014). Money and economic growth. Journal of economic asymmetries, 11, 8-18. https://doi.org/10.1016/j.jeca.2014.04.002
DOI https://doi.org/10.1016/j.jeca.2014.04.002
Keywords Money; Growth
Publisher URL http://www.sciencedirect.com/science/article/pii/S1703494914000097
Additional Information Author's accepted manuscript of article published in: The journal of economic asymmetries, 2014, v.11, at http://www.sciencedirec...e/pii/S1703494914000097

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