TY - JOUR
T1 - Liquidity, innovation and growth
AU - Berentsen, Aleksander
AU - Rojas Breu, Mariana
AU - Shi, Shouyong
N1 - Funding Information:
Earlier versions of this paper (under different titles) were presented at the Society for Economic Dynamics meeting (July 2008), Federal Reserve Bank of Chicago (August 2008), Federal Reserve Bank of Philadelphia (February 2009), LACEA Conference (October 2009) and CEAFE Conference (June 2010). Berentsen gratefully acknowledges support by the Bank for International Settlements (the usual disclaimer applies). Rojas Breu acknowledges the financial support from Région Ile de France . Shi gratefully acknowledges the financial support from the Bank of Canada Fellowship , the Canada Research Chair , and the Social Sciences and Humanities Research Council of Canada . The opinion expressed here does not represent the view of the Bank of Canada or the Federal Reserve System.
PY - 2012/12
Y1 - 2012/12
N2 - Many countries simultaneously suffer from high inflation, low growth and poorly developed financial sectors. In this paper, we integrate a microfounded model of money and finance into a model of endogenous growth to examine the effects of inflation on welfare, growth and the size of the financial sector. A novel feature is that the innovation sector is decentralized. Financial intermediaries arise endogenously to provide liquidity to this sector. Consistent with the data but in contrast to previous work, reducing inflation generates large growth gains. These large gains cannot be easily reproduced by imposing a cash-in-advance constraint in the innovation sector.
AB - Many countries simultaneously suffer from high inflation, low growth and poorly developed financial sectors. In this paper, we integrate a microfounded model of money and finance into a model of endogenous growth to examine the effects of inflation on welfare, growth and the size of the financial sector. A novel feature is that the innovation sector is decentralized. Financial intermediaries arise endogenously to provide liquidity to this sector. Consistent with the data but in contrast to previous work, reducing inflation generates large growth gains. These large gains cannot be easily reproduced by imposing a cash-in-advance constraint in the innovation sector.
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U2 - 10.1016/j.jmoneco.2012.10.005
DO - 10.1016/j.jmoneco.2012.10.005
M3 - Article
AN - SCOPUS:84870461726
SN - 0304-3932
VL - 59
SP - 721
EP - 737
JO - Journal of Monetary Economics
JF - Journal of Monetary Economics
IS - 8
ER -