Cash-in-advance constraint with status and endogenous growth

Kawagishi, Taketo and Kaminoyama, Ken-ichi (2014): Cash-in-advance constraint with status and endogenous growth.

Abstract

This paper explores a one-sector AK model with a cash-in-advance (CIA) constraint that itself depends on relative income, which implies status (we call this constraint the “CIA-status constraint”). The CIA-status constraint means that agents with higher income are more creditworthy and can make purchases with fewer money holdings. Under the Clower-Lucas-type CIA-status constraint, we show that the endogenous growth rate and money growth are positively correlated. On the other hand, under the Stockman-type CIA-status constraint, we confirm that the relationship between the endogenous growth rate and money growth changes from negative to positive when the elasticity of the CIA constraint with respect to status exceeds one.

• Item Type: MPRA Paper
• Language: English
• Keywords: Cash-in-advance constraint; Status; Endogenous growth; Money growth
• Subjects: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E41 - Demand for Money; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O42 - Monetary Growth Models

References

Avery, R., Elliehausen, G., Kennickell, A., 1987. Changes in the use of transaction accounts and cash from 1984 to 1986. Federal Reserve Bulletin 73, 179-195.

Chang, W.-Y., Hsieh, Y.-N., Lai, C.-C., 2000. Social status, inflation and endogenous growth in a cash-in-advance economy. European Journal of Political Economy 16, 535-545.

Chang, W.-Y., Tsai, H.F., 2003. Money, social status, and capital accumulation in a cash-inadvance model: a comment. Journal of Money, Credit and Banking 35, 657-661.

Chen, H.-J., Guo, J.-T., 2009. Social status and the growth effect of money. The Japanese Economic Review 60, 133-141.

Chen, H.-J., Guo, J.-T., 2011. Money, social status and endogenous growth in a generalized cash-in-advance model. Pacific Economic Review 16, 267-284.

Chen, S.-H., Guo, J.-T., 2008. Velocity of money, equilibrium (in)determinacy and endogenous growth. Journal of Macroeconomics 30, 1085-1096.

Gong, L., Zou, H.F., 2001. Money, social status, and capital accumulation in a cash-in-advance model. Journal of Money, Credit and Banking 33, 284-293.

Kaminoyama, K., Kawagishi, T., 2013. Cash-in-advance constraint with status in a neoclassical growth model. Theoretical Economics Letters 3, 292-296.

Kennickell, A., Starr-McCluer, M., 1996. Household Saving and Portfolio Change: Evidence from the 1983-1989 SCF Panel. Finance and Economics Discussion Series 18, Division of Monetary Affairs, Federal Reserve Board, Washington, DC.

Kessler, D., Wolff, E., 1991. A comparative analysis of household wealth patterns in France and the United States. Review of Income and Wealth 37, 249-266.

Kurz, M., 1968. Optimal economic growth and wealth effects. International Economic Review 9, 348-357.

Suen, M.-H., Yip, C.K., 2005. Superneutrality, indeterminacy and endogenous growth. Journal of Macroeconomics 27, 579-595.

Weber, M., 1958. The protestant ethic and the spirit of capitalism. Charles Scribner’s Sons, New York.

Wolff, E., 1983. The size distribution of household disposable wealth in the united states. Review of Income and Wealth 29, 125-146.

Zou, H.F., 1994. ‘The spirit of capitalism’ and long-run growth. European Journal of Political Economy 10, 279-293. 22