Inflation, Growth, and Impatience in a Cash-in-Advance Economy

Abstract

This note considers a cash-in-advance (CIA) economy in which the CIA constraint is applied not only to consumption but also to all or a part of investment and the discounting rate is a function of consumption. It investigates the e ect of monetary growth on capital, money, consumption, and welfare. It demonstrates that as long as the condition assuring the uniqueness of steady state holds, the effect on the above variables is all-negative, although a positive slope of the discounting function mitigates the negative e ect. This result can establish a qualitative equivalence among the money-in-the-utility model, the transaction-costs model, and the CIA model.