The authors thank an anonymous referee and Masao Ogaki (the editor) for valuable suggestions. We have benefited from discussions with Qinglai Meng, Ted Palivos, Ping Wang, Chong K. Yip, and workshop participants at the Chinese University in Hong Kong.
Inflation and Growth: Impatience and a Qualitative Equivalence
Version of Record online: 12 AUG 2008
© 2008 The Ohio State University
Journal of Money, Credit and Banking
Volume 40, Issue 6, pages 1309–1323, September 2008
How to Cite
CHEN, B.-L., HSU, M. and LU, C.-H. (2008), Inflation and Growth: Impatience and a Qualitative Equivalence. Journal of Money, Credit and Banking, 40: 1309–1323. doi: 10.1111/j.1538-4616.2008.00159.x
- Issue online: 12 AUG 2008
- Version of Record online: 12 AUG 2008
- Received January 29, 2007; and accepted in revised form July 2, 2007.
- endogenous time preferences;
- qualitative equivalence
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.