Banking and Money in an Extended Solow-Uzawa’s Neoclassical Growth Model

Abstract

Abstract This study deals with interactions between economic growth and structural change with banking. The study is influenced by the growth model of money and banking by Chang et al. (2007). It deviates from Chang et al.’ model with regard to the monetary authority behavior, economic structure, and modeling behavior of household. The model deals with dynamic interactions between money, banking, economic structural change and growth in a perfectly competitive economy. The economic system consists of one capital goods sector, one consumer goods sector, and one banking sector. The two goods sectors are based on the Solow-Uzawa growth model. The motion is described by a set of differential equations. For illustration, we simulate the motion of the economic system. We identify the existence of a stable equilibrium point. We carry out comparative dynamic analysis. The comparative analyses provide some insights into the complexity of economic growth with banking.