Inflation, Transaction Costs and Indeterminacy in Monetary Economies with Endogenous Growth
Article first published online: 15 AUG 2003
Volume 70, Issue 279, pages 451–470, August 2003
How to Cite
Itaya, J.-I. and Mino, K. (2003), Inflation, Transaction Costs and Indeterminacy in Monetary Economies with Endogenous Growth. Economica, 70: 451–470. doi: 10.1111/1468-0335.01088
- Issue published online: 15 AUG 2003
- Article first published online: 15 AUG 2003
- Final version received 11 February 2002.
This paper investigates the relationship between inflation (the rate of monetary expansion) and economic growth in a monetary version of Benhabib and Farmer's (Journal of Economic Theory, 63, 19–41, 1994) one-sector endogenous growth model, in which money reduces transaction costs or shopping time. It is shown that when labour externalities are large there may be dual steady states, one of which is indeterminate and the other is determinate, and that the Tobin effect in the growth rate sense (i.e. higher rates of inflation increase the growth rate of the economy) always emerges in either of the steady states depending on the properties of a transaction cost technology.