inflation and welfare in a monetary economy it is in everyone s private interest to try to get someone else to hold non interest bearing cash and reserves but someone has to hold it all so these efforts must simply cancel out all of us spend several hours per year in this effort and employ thousands of talented and highly trained people to help us these person hours are simply thrown away wasted on a task that should not have to be performed at all

growth and the effects of inflation abstract in this paper we study the relationship between the rate of increase of the money supply and the rate of growth of output in an economy we show that in some models of endogenous growth inflation has direct effects on the growth rate of the economy despite this the estimated welfare cost of inflation from calibrated examples is similar to that found in exogenous growth models

a revised tobin effect from inflation relative input price and capital ratio realignments usa and uk 1959 1999 the paper studies the realignments induced by inflation within an endogenous growth monetary economy accelerating inflation raises the ratio of the real wage to the real interest rate and so raises the use of physical capital relative to human capital across all sectors we find cointegration evidence for the us and uk economies consistent with a general equilibrium tobin type effect of inflation on input prices and capital intensity even while the growth rate of output is reduced by inflation

money and growth an alternative approach this paper takes an alternative approach to the topic of money and growth by developing a model in which the effects of sustained capital accumulation on an evolving system of payments in addition to the conventional effects of sustained inflation on growth are examined while the effects of inflation on growth are small the effects of growth on the monetary system are substantial the results are consistent with ideas about money and growth contained in work that predates that of james tobin and miguel sidrauski as well as with evidence that money and asset demands vary systematically within economies as they develop copyright 1994 by american economic association

monetary policy banking and growth i introduction fischer and modigliani 1978 exhaustively list the costs associated with inflation in recent years a growing body of evidence is consistent with the notion that slower output growth may be added to the fischer modigliani list specifically analyses by kormendi and meguire 1985 fisher 1991 degregario 1992 gomme 1993 wynne 1993 barro 1996 and others find a negative correlation between the inflation rate and output growth both across countries and over time 1 moreover the studies consistently find that the growth rate response to a change in the inflation rate is quite large the different studies produce a range of correlation coefficients a country in which the inflation rate is 10 will grow between 1 4 and 3 4 percentage points slower than a country in which the inflation rate is 0 the purpose of this paper is to determine whether a reasonably calibrated model economy can account for the size of the regression coefficients the model economy is a modified version of a member of the ak class in which bank deposits are used to finance capital accumulation in this model economy fiat money is valued because the bank is required to hold reserves against its deposits throughout this paper bank deposits is used in a narrow sense to include only those deposits against which a reserve requirement applies because monetary policy has two tools at its disposal it is possible to conduct two separate policy experiments the results from these experiments particularly the inflation rate experiment sheds light on the potential importance on the share of investment financed through bank deposits researchers have long been interested in the interaction between financing and growth schumpeter 1911 argued that the financial sector more specifically its stage of development affected a country s growth rate 2 cameron 1967 described financial development in scotland england and france in the late 18th and early 19th centuries cameron concluded that scotland and england entered the industrial revolution ahead of france because it had the financial infrastructure capable of financing capital accumulation on the needed scale king and levine 1993 find that countries with more developed financial sectors tend to grow faster than countries with less developed financial sectors it seems natural therefore to investigate whether the means of financing can yield any insights into the inflation growth relationship other researchers have also quantified the effect that movements in the inflation rate has on the growth rate in particular jones and manuelli 1995 use several variants of economies in which people hold fiat money to satisfy a cash in advance constraint they demonstrate that large growth rate effects cannot be accounted for in these model economies in these models inflation does not materially alter capital accumulation rates affecting instead the allocation between the credit good and cash good purchases jones and manuelli find small growth rate effects in an economy in which the tax code has nominally denominated depreciation rates in two papers that focus on inflation and growth chari jones and manuelli 1995 1996 consider economies in which capital accumulation can be financed through either bank deposits or directly as in the economy specified in this paper reserve requirements are applied against bank deposits agents can avoid the inflation tax by using the direct financing means more intensively consequently the growth rate effects are muted in the chari jones manuelli model economies and are too small to account for the size of the regression coefficients reported in kormendi and mcguire fischer and barro in this paper i assume that all investment is financed through bank deposits with this extreme assumption the model economy can account for the size of the growth rate effects observed in the data 3 thus there is a potentially useful lesson learned from the quantitative results in the all bank financing economy and those reported in chari jones manuelli

transaction services inflation and welfare this paper is motivated by empirical observations on the comovements of currency velocity inflation and the relative size of the credit services sector we document these comovements and incorporate into a monetary growth model a credit services sector that provides services that help people economize on money our model makes two new contributions first we show that direct evidence on the appropriately defined credit service sector for the united states is consistent with the welfare cost measured using an estimated money demand schedule second we provide estimates of the welfare cost of inflation that have some new features

a banking explanation of the us velocity of money 1919 2004 the paper shows that us gdp velocity of m1 money has exhibited long cycles around a 1 25 per year upward trend during the 1919 2004 period it explains the velocity cycles through shocks constructed from a dsge model and annual time series data ingram et al 1994 model velocity is stable along the balanced growth path which features endogenous growth and decentralized banking hat produces exchange credit positive shocks to credit productivity and money supply increase velocity as money demand falls while positive goods productivity shock raises temporary output and velocity the paper explains such velocity volatility at both business cycle and long run frequencies with filtered velocity turning negative starting during the 1930s and the 1987 crashes and again around 2003 results suggest that the money and credit shocks appear to be more important for velocity during less stable times and the goods productivity shock more important during stable times

bank intermediation over the business cycle a model is developed in which banks engage in valued asset transformation by converting illiquid assets working capital loans into highly liquid demand deposit accounts that households use for transactions purposes consumption smoothing behavior induces countercyclicality in the degree to which firms rely on bank borrowings to finance their working capital expenses which is consistent with u s data the importance of financial markets that provide alternative sources of short term funds to firms is also illustrated absent these markets nominal interest rates become nearly perfectly positively correlated with output which is counterfactual and monetary shocks induce perhaps artificially large aggregate employment responses

endogenous financial innovation and the demand for money this paper embeds two key ideas about the nature of financial innovation taken from the empirical literature into a familiar equilibrium monetary model it provides formal support for several alternative econometric specifications for money demand that attempt to capture the effects of financial innovation and demonstrates that a popular theoretical model of money demand when suitably modified can account for some unusual monetary dynamics found in the data thus it helps to establish both the theoretical relevance of recent empirical work and the empirical relevance of recent theoretical work on the demand for money copyright 1995 by ohio state university press

on inflation as a regressive consumption tax abstract evidence on the portfolio holdings and transaction patterns of households suggests that the burden of inflation is not evenly distributed we build a monetary growth model consistent with key features of cross sectional household data and use this framework to study the distributional impact of inflation at the aggregate level our model economy behaves similar to standard monetary growth models within the representative agent abstraction inflation has however important distributional effects since it is effectively a regressive consumption tax thus neglecting the distributional consequences of inflation may prove misleading in assessing the effects of inflation in our economy

take it or leave it experimental evidence on the effect of time limited offers on consumer behaviour making time limited offers is a common retail pricing strategy economic theory implies that such offers inhibit price search making markets less competitive we investigate experimentally whether this effect is intensified by behavioural factors specifically feedback conditional regret reduced decision quality due to time constraints and aversion to small scale risk participants choose from a sequence of alternative price offers one of which might be time limited under various conditions these price search problems were matched with equivalent time unconstrained binary choices between lotteries we find no evidence of regret effects surprisingly time limited offers are more likely to be chosen when the time available for decision making is longer overall individuals show aversion to small scale risk this is stronger in price search than lottery choice allowing for this choices in the two types of task tend to be mutually consistent at the individual level even when decision making is subject to tight time constraints

the welfare cost of inflation in a cash in advance economy with costly credit the paper presents a modification of the lucas stokey 1983 cash in advance economy in which the representative consumer decides based on relative prices which goods to buy with cash and which with costly credit an explicit baumol 1952 condition emerges that guides this consumer choice deriving and estimating a closed form welfare cost function in an example economy the paper shows that the welfare cost of inflation depends on the margins of substitution the consumer avoids inflation through costly credit and faces higher welfare costs of inflation than in standard cash in advance economies

money velocity in an endogenous growth business cycle with credit shocks the explanation of velocity has been based in substitution and income effects since keynes s 1923 interest rate explanation and friedman s 1956 application of the permanent income hypothesis to money demand modern real business cycle theory relies on a goods productivity shocks to mimic the data s procyclic velocity feature as in friedman s explanation while finding money shocks unimportant and not integrating financial innovation explanations this paper sets the model within endogenous growth and adds credit shocks it models velocity more closely with significant roles for money shocks and credit shocks along with the goods productivity shocks endogenous growth is key to the construction of the money and credit shocks since they have similar effects on velocity through substitution effects from changes in the nominal interest rate and in the cost of financial intermediation but opposite effects upon growth through permanent income effects that are absent with exogenous growth

money and interest in a cash in advance economy the authors analyze an aggregative general equilibrium model in which the use of money is motivated by a cash in advance constraint applied to purchases of a subset of consumption goods the system is subject to both real and monetary shocks which are economy wide and observed by all they develop methods for verifying the existence of characterizing and explicitly calculating equilibria copyright 1987 by the econometric society

anticipated inflation and the capital stock in a cash in advance economy abstract an economy is constructed in which the steady state capital stock is inversely related to the rate of inflation as a result that is directly opposite the usual conclusion

money and growth revisited abstract conventional wisdom is that if public policy can affect the growth rate of the economy the welfare implications of alternative policies will be large in this paper a stochastic dynamic general equilibrium model with endogenous growth and money is examined in this setting inflation lowers growth through its effect on the return to work however the welfare costs of higher inflation are modest the endogenous labor supply is important in producing this result

food for education versus school quality a comparison of policy options to reduce child labour in a model in which credit markets play a crucial role we examine two policy options for reducing child labour food for education and investment in education quality with an imperfectly elastic supply of credit an increase in food subsidy is more eective in reducing child labour than an income equivalent increase in expenditures in education quality the eectiveness of the latter policy improves and the optimal share of resources devoted to this policy increases at the expense of food subsidies as the supply of credit becomes more elastic

inflation and balanced path growth with alternative payment mechanisms the paper shows that contrary to conventional wisdom an endogenous growth economy with human capital and alternative payment mechanisms can robustly explain major facets of the long run inflation experience a negative inflation growth relation is explained including a striking nonlinearity found re peatedly in empirical studies a set of tobin 1965 effects are also explained and further linked in magnitude to the growth effects through the interest elasticity of money demand undis closed previously this link helps fill out the intuition of how the inflation experience can be plausibly explained in a robust fashion with a model extended to include credit as a payment mechanism

the value of inside and outside money abstract we study dynamic economies in which agents may have incentives to hold both privately issued a k a inside and publicly issued a k a outside circulating liabilities as part of an equilibrium our analysis emphasizes spatial separation and limited communication as frictions that motivate monetary exchange we isolate conditions under which a combination of inside and outside money does and does not allow the economy to achieve a first best allocation of resources we also study the extent to which the use of private circulating liabilities alone or the use of public circulating liabilities alone can address the frictions that lead to monetary exchange

the demand for bank reserves and other monetary aggregates the paper starts with haslag s 1998 model of the bank s demand for reserves and reformulates it with a cash in advance approach for both financial intermediary and consumer this gives a demand for a base of cash plus reserves that is not sensitive to who gets the inflation tax transfer it extends the model to formulate a demand for demand deposits yielding an m1 type demand and then includes exchange credit yielding an m2 type demand based on the comparative statics of the model it provides an interpretation of the evidence on monetary aggregates this explanation relies on the nominal interest as well as technology factors of the banking sector e31 e13 o42