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MONEY, SOCIAL STATUS AND ENDOGENOUS GROWTH IN A GENERALIZED CASH‐IN‐ADVANCE MODEL
Author(s) -
CHEN HUNGJU,
GUO JANGTING
Publication year - 2011
Publication title -
pacific economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.34
H-Index - 33
eISSN - 1468-0106
pISSN - 1361-374X
DOI - 10.1111/j.1468-0106.2011.00547.x
Subject(s) - economics , endogenous growth theory , cash , consumption (sociology) , elasticity of substitution , elasticity of intertemporal substitution , general equilibrium theory , microeconomics , growth model , investment (military) , constraint (computer aided design) , inflation (cosmology) , liquidity constraint , monetary economics , market liquidity , econometrics , macroeconomics , production (economics) , mathematics , market economy , social science , physics , geometry , sociology , politics , theoretical physics , political science , law , human capital
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.