Money and Growth in a Production Economy with Multiple Assets

Kaas, Leo and Weinrich, Gerd (October 2000) Money and Growth in a Production Economy with Multiple Assets. Former Series > Working Paper Series > IHS Economics Series 86


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Abstract: We consider a Diamond-type model of endogenous growth in which there are three assets: outside money, government bonds, and equity. Due to productivity shocks, the equity return is uncertain, and risk averse investors require a positive equity premium. Typically, there exist two steady states, but only one of them is stable, both in the forward perfect foresight dynamics and under adaptive expectations. Tight monetary policy is harmful for growth in the stable steady state. These results hold under four different monetary policy strategies applied by the monetary authority. A monetary contraction increases the bond return, reduces the equity premium and thereby capital investment and growth.;

Item Type: IHS Series
Keywords: 'Monetary policy' 'Endogenous growth' 'Equity premium'
Classification Codes (e.g. JEL): D84, E52, O42
Date Deposited: 26 Sep 2014 10:37
Last Modified: 27 Sep 2019 06:17
ISBN: 1605-7996

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