Wang, Ping and Xie, Danyang (2012): Real effects of money growth and optimal rate of inflation in a cash-in-advance economy with labor-market frictions.
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This paper studies the consequences of labor-market frictions for the real effects of steady inflation when cash is required for households' consumption purchases and firms' wage payments. Money growth may generate a positive real effect by encouraging vacancy creation and raising job matches. This may result in a positive optimal rate of inflation, particularly in an economy with moderate money injections to firms and with nonnegligible labor-market frictions in which wage bargains are not efficient. This main finding holds for a wide range of money injection schemes, with alternative cash constraints, and in a second-best world with pre-existing distortionary taxes.
|Item Type:||MPRA Paper|
|Original Title:||Real effects of money growth and optimal rate of inflation in a cash-in-advance economy with labor-market frictions|
|Keywords:||Cash Constraints; Nonsuperneutrality of Money; the Friedman rule; Labor-Market Frictions|
|Subjects:||O - Economic Development, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O42 - Monetary Growth Models
D - Microeconomics > D9 - Intertemporal Choice and Growth > D90 - General
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E41 - Demand for Money
|Depositing User:||Danyang Xie|
|Date Deposited:||31. Oct 2012 20:35|
|Last Modified:||13. Feb 2013 09:03|
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