Inflation and Output in a Cash Constrained Economy
Fall 2011, Volume 6 - Number 1 (28 صفحه - از 1 تا 28)
We examine permanent effects of monetary expansion in an economy where access to credit for financing consumption and investment is limited and consumers and firms are cash-constrained. The main difference between our model with those of Cooley-Hanson (1989) and Walsh (2003) is that investment, in addition to consumption, is subject to a cash-constraint. In this respect, our model is similar to Stockman (1981) and Abel (1985) but different from them in that they do not provide for labor-leisure choice. Moreover, in contrast to Stockman and Abel we follow Svensson's (1985) timing sequence in that the asset market opens after the goods market. A version of Cooley and Hanson model is calibrated with the data on the economy of Iran. We compare the business cycles and output and consumption moments generated from simulated data to the moments extracted from the actual data. From the impulse-response functions we also derive the effect of a positive monetary shock on output and inflation.خلاصه ماشینی:
"Sidrauski (1967) shows that money is "super-neutral" in a utility maximizing framework of infinitely lived individuals—implying that steady state values of output and consumption per worker are not related to monetary growth rate (via inflation). A different set of conclusions is reached by Stockman (1981), Abel (1985) and Gommes (1999), in that an increase in the inflation rate results in a lower steady state level of output and consumption, if there is a cash-in-advance (CIA) constraint on both consumption and investment. The theoretical conclusions regarding the direction of the permanent effect of monetary expansion on economic growth or steady-state output (the issue of super-neutrality or non-super-neutrality) is influenced by the presumed functions of money—that is how money is introduced into the economy—and the manner in which those functions are incorporated into the theoretical models. We would like to trace the effect of erosion of purchasing power of money resulting from the practice of inflationary policies on steady state output and consumption in the above-mentioned environment within the confines of a parameterized dynamic general equilibrium model with a CIA constraint. The decline in long-run output due to higher money growth rate (inflation) is the result of the negative effect on employment and the non-positive effect restriction implied on capital as mentioned above. The dynamic adjustment of deviations of output from steady state in response to a once-for-all money growth shock heavily depends on the magnitude of the elasticity of inter-temporal substitution in consumption whose estimated value is relatively high in the Economy of Iran."
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