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Inflation and Growth: Impatience and a Qualitative Equivalence
Author(s) -
CHEN BEENLON,
HSU MEI,
LU CHIAHUI
Publication year - 2008
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2008.00159.x
Subject(s) - economics , time preference , preference , equivalence (formal languages) , inflation (cosmology) , consumption (sociology) , econometrics , revealed preference , empirical evidence , ricardian equivalence , microeconomics , monetary economics , mathematics , social science , philosophy , physics , epistemology , discrete mathematics , fiscal policy , sociology , theoretical physics
This paper studies the role of an endogenous time preference on the relationship between inflation and growth in the long run in both the money‐in‐utility‐function (MIUF) and transactions‐costs (TC) models. We establish a qualitative equivalence between the two models in a setup without a labor–leisure tradeoff. When the time preference is decreasing (or increasing) in consumption and real balances, both the MIUF and TC models are qualitatively equivalent in terms of predicting a negative (or positive) relationship between inflation and growth in a steady state. Both a decreasing and an increasing time preference in consumption are consistent with the arguments found within the literature. While a decreasing time preference in real balances corroborates with empirical evidence, there is no evidence in support of an increasing time preference in real balances.