Abstract
In this paper, we assume that a cash-in-advance (CIA) constraint itself depends on relative income, which implies the status. This constraint means that agents with higher income are more creditworthy and can make purchases with fewer money holdings. Under this assumption, we construct a one-sector neoclassical growth model and show that there exists a unique steady state that has saddle-path stability without specifying each function. Furthermore, we examine the effects of money growth on capital accumulation. If the status elasticity of CIA constraint is large, the Tobin effect can arise. In contrast, if it is small, the anti-Tobin effect can arise.
Highlights
IntroductionThere is a growing macroeconomic literature that examines the effects of inflation (money growth) on capital accumulation
There is a growing macroeconomic literature that examines the effects of inflation on capital accumulation
In the present study, we assume that the CIA constraint itself depends on relative income, which implies status, and that this CIA constraint applies to consumption and investment
Summary
There is a growing macroeconomic literature that examines the effects of inflation (money growth) on capital accumulation. Stockman [4] considers a standard neoclassical growth model with the CIA constraint applying to both consumption and investment, and shows that money growth decreases capital accumulation This is because after the period of higher inflation the net rate of return on capital falls. In the present study, we assume that the CIA constraint itself depends on relative income, which implies status, and that this CIA constraint applies to consumption and investment Under such a CIA constraint, we consider a neoclassical growth model and clarify how status has an impact on the relationship between the rate of money growth and the steady-state level of capital, as well as a uniqueness of the steady state and its stability
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