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EQUILIBRIUM GROWTH IN A MONETARY ECONOMY WITH TRANSACTIONS COSTS *
Author(s) -
Marquis Milton H.,
Reffett Kevin L.
Publication year - 1995
Publication title -
bulletin of economic research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.227
H-Index - 29
eISSN - 1467-8586
pISSN - 0307-3378
DOI - 10.1111/j.1467-8586.1995.tb00612.x
Subject(s) - economics , general equilibrium theory , inflation (cosmology) , benchmark (surveying) , welfare , investment (military) , monetary economics , monetary policy , interest rate , macroeconomics , market economy , physics , geodesy , politics , theoretical physics , law , geography , political science
The paper describes a dynamic general equilibrium monetary economy with technological primitives that are consistent with the possibility of asymptotic equilibrium growth. The paper focuses on the relationship between equilibrium financing constraints on investment goods, transaction costs and economic growth. A generalized growth condition is derived that involves both monetary growth rates and transaction costs. The condition is used to show that (i) although inflation taxes can potentially exert a negative influence on long‐run economic growth, these growth effects cannot in general be arbitrarily large; and (ii) for some monetary growth rates, money is superneutral in contrast to the models of Stockman and Abel. Numerical work indicates that although the welfare and growth effects of decreasing nominal interest rates from a benchmark are large, the costs associated with raising nominal interest rates from benchmark are not.