'Soft' growth and the role of monetary policy in selecting the long-run equilibrium path

Luigi Bonatti ()
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Luigi Bonatti: Department of Economics, University of Bergamo

No 306, Working Papers (-2012) from University of Bergamo, Department of Economics

Abstract: Combining employment and growth theory with a cash-in-advance constraint, the model determines the balanced growth path (BGP). Under low intertemporal elasticity of substitution in consumption, the Friedman rule is consistent with the existence of an unique BGP: monetary rules leading to a steady-state rate of money expansion higher than that dictated by the Friedman rule lower balanced growth. Under high elasticity, the Friedman rule is consistent with multiple BGP: the authority can "select" the BGP exhibiting the highest growth rate by expanding money at the appropriate fixed rate, since balanced growth rises with the fixed rate of money expansion.

Keywords: On-the-job training; skilled labor; strategic complementarity; indeterminacy; inflation targeting (search for similar items in EconPapers)
JEL-codes: E52 J23 O41 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2003
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Persistent link: https://EconPapers.repec.org/RePEc:brg:wpaper:0306

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