Abstract
In this study, we introduce nominal wage stickiness into an endogenous growth model based on R & D. This study examines how money growth affects long-run economic growth. We find that there exists a unique balanced growth path for sufficiently high rates of money growth, and that the economy exhibits sustained growth based on sustained R & D. Faster money growth results in greater employment and faster economic growth along such a balanced growth path. Furthermore, under some parameter restrictions, no balanced growth path exists for low rates of money growth; the economy is trapped in a steady state without long-run growth. These results suggest that money growth may be an important factor for long-run economic growth.
Highlights
This study proposes a new monetary growth model involving price stickiness and endogenous R & D
We find that there exists a unique balanced growth path for sufficiently high rates of money growth, and that the economy exhibits sustained growth based on sustained R & D
These results suggest that money growth may be an important factor for long-run economic growth
Summary
This study proposes a new monetary growth model involving price stickiness and endogenous R & D. We introduce nominal wage stickiness into a long-run growth model based on R & D and investigate how money growth affects long-run output, employment, and economic growth. Under some parameter restrictions, there is no balanced growth path for low money growth rates, and the economy is trapped in a steady state without long-run growth. [9] [10] have demonstrated the positive relationship between a monetary expansion and long-run growth using the infinitely lived overlapping-generation models Some studies such as [11]-[13] proposed endogenous growth models that introduced nominal rigidities. [13] proposed an endogenous growth model with sticky wage due to staggered Taylor wage contracts, and found a nonlinear relationship between money growth and long-run economic growth. We use the simple monetary policy rule under which financial authorities expand money supply at a constant rate
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