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RANDOM MATCHING AND MONEY IN THE NEOCLASSICAL GROWTH MODEL: SOME ANALYTICAL RESULTS

Published online by Cambridge University Press:  20 July 2011

Christopher J. Waller
Christopher J. Waller*
Affiliation:
Federal Reserve Bank of St. Louis and University of Notre Dame
*
Address correspondence to: Christopher J. Waller, Research Division, Federal Reserve Bank of St. Louis, P.O. Box 442, St. Louis, MO 63166, USA; e-mail: [email protected].
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Abstract

I use the monetary version of the neoclassical growth model developed by Aruoba, Waller, and Wright [Journal of Monetary Economics (2011)] to study the properties of the model when there is exogenous growth. I first consider the planner's problem, and then the equilibrium outcome in a monetary economy. I do so by first using proportional bargaining to determine the terms of trade and then considering competitive price taking. I obtain closed-form solutions for all variables along the balanced growth path in all cases. I then derive closed-form solutions for the transition paths under the assumption of full depreciation and, in the monetary economy, a particular nonstationary interest rate policy. The key result is that inflation is damaging to per capita income levels along the balanced growth path and to short-run growth of the economy.

Keywords

GrowthMoneySearch
Type
Articles
Information
Macroeconomic Dynamics , Volume 15 , Supplement S2: Money, Credit, and Liquidity: Part 2 , September 2011 , pp. 293 - 312
Copyright
Copyright © Cambridge University Press 2011

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