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Mitigating the Growth-Effects of Inflation through Financial Development
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Niloy Bose
Published/Copyright:
February 27, 2008
This paper examines the growth-effects of inflation at alternative stages of financial development. We propose an endogenous growth model where intermediated savings generate capital. Informational problems cause banks to ration credit and hold liquid assets offering (real) returns that vary inversely with inflation. Inflation therefore acts like a tax on capital accumulation. However financial development lessens credit-rationing, which reduces the demand for these liquid assets and softens the incidence of the inflation tax. Sizeable and statistically significant interactions between inflation and measures of financial development in cross-country and panel regressions provide empirical support for our model.
Keywords: credit-rationing; financial intermediary development; inflation; information; monetary growth models
Published Online: 2008-2-27
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
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Keywords for this article
credit-rationing;
financial intermediary development;
inflation;
information;
monetary growth models
Articles in the same Issue
- Topics Article
- The Importance of Industrial Policy in Quality-Ladder Growth Models
- The Evolution of International Output Differences (1970-2000): From Factors to Productivity
- Non-Linearities and Unit Roots in G7 Macroeconomic Variables
- Mitigating the Growth-Effects of Inflation through Financial Development
- The Dynamics of European Inflation Expectations
- Target Saving in an Overlapping Generations Model
- Inequality, Volatility and Labour Market Efficiency
- Expected Equity Returns and the Demand for Money
- Forecasting with DSGE Models: The Role of Nonlinearities
- Job Reallocation, Unemployment and Hours in a New Keynesian Model
- Consolidation of Student Loan Repayments and Default Incentives
- Advent of Industrial Mass Production: Three Stages of Economic Development
- The Japanese Depression in the Interwar Period: A General Equilibrium Analysis
- Determinants of Bilateral Remittance Flows
- Cyclical Behavior of Unemployment and Job Vacancies: A Comparison between Canada and the United States
- Economic and Socio-Political Determinants of de Facto Monetary Institutions and Inflationary Outcomes
- On Equilibrium Determinacy in New Keynesian Models with Staggered Wage and Price Setting
- Contributions Article
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- Employment Growth in the American Urban Hierarchy: Long Live Distance
- Endogenous Persistence and the Performance of Inertial Targeting Rules
- Unemployment, Imperfect Risk Sharing, and the Monetary Business Cycle
- Technological Progress and the Urbanization Process
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