For example, the growth effects of money growth are studied by † and many others and will be discussed at the end of this section.
Equilibrium Dynamics in an Endogenous Growth Model of Money and Banking
Article first published online: 13 SEP 2007
Journal of Money, Credit and Banking
Volume 39, Issue 7, pages 1683–1710, October 2007
How to Cite
CHANG, J.-J., CHANG, W.-Y., LAI, C.-C. and WANG, P. (2007), Equilibrium Dynamics in an Endogenous Growth Model of Money and Banking. Journal of Money, Credit and Banking, 39: 1683–1710. doi: 10.1111/j.1538-4616.2007.00083.x
Part of this paper was completed while the fourth author was visiting Academia Sinica, the IMF Institute and Kobe University. We would like to thank Been-Lon Chen, Chong K. Yip, an anonymous referee and an editor for their insightful comments and suggestions. Any remaining errors are, of course, our own responsibility. Financial support from the National Science Council is gratefully acknowledged.
- Issue published online: 13 SEP 2007
- Article first published online: 13 SEP 2007
- Received January 17, 2006; and accepted in revised form September 20, 2006.
- money and banking;
- endogenous growth;
- reserve requirement
We construct an analytically tractable endogenous growth model of money and banking where money provides “liquidity services” to facilitate transactions and banks convert non-reserve deposits into productive capital. We examine both the long- and short-run effects of changes in the money growth rate or the reserve requirement ratio. In response to a change in the required reserve ratio, the inflation rate and the growth rates of capital, real balances, and consumption need not adjust monotonically along the transition path. While the balanced growth equilibrium may be either a saddle or a source locally, the global dynamical system exhibits flip bifurcation.