Universität zu Köln

The Real Effects of Money Growth in the Long Run. An Analysis of a Schumpeterian Growth Model with Nominal Price Rigidity

Kromen, Bettina (2006) The Real Effects of Money Growth in the Long Run. An Analysis of a Schumpeterian Growth Model with Nominal Price Rigidity. PhD thesis, Universität zu Köln.

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    Item Type: Thesis (PhD thesis)
    Translated abstract:
    For a long time, the effects of monetary impulses were believed to be restricted to the short run. Recently, this view has been challenged by empirical studies that find a significant relationship between money growth or inflation on the one hand and the rate of economic growth on the other. The present dissertation investigates in a theoretical model whether the presence of nominal price rigidity is sufficient to explain the long-run real effects of money growth. In particular, the steady state relationships between money growth on the one side and the rate of economic growth and the level of employment on the other are analysed in a Schumpeterian growth model with sticky nominal prices. The underlying idea is that although prices are � both in the real world and the calibrated examples illustrating our analytical results in this thesis � fixed for only short periods, price rigidity can still influence long-run outcomes for the following reason: Price rigidity is a permanent feature of the economy and thus permanently causes distortions of relative prices. Since relative prices affect profit maximising decisions about resource allocation, they affect long-run growth, which is nothing but a sequence of short-run growth rates, insofar as the latter is affected by the resource allocation, e.g. by the amount invested in Research and Development. Specifically, the real side of the model is based on a �quality ladder model� where economic growth is driven by the stochastic research activities of an R&D sector which lead to improvements in the quality of a large number of imperfectly substitutable intermediate goods used to produce the economy�s consumption good. A monetary side is added to the model by assuming that households derive utility from holding real money balances. Since our interest is in long-run behaviour only, money supply is modelled in the simple form of a constant exogenous growth rate for the monetary aggregate. Further, it is assumed that prices in the intermediate goods sector are sticky such that prices in this market can only be changed at market entry or upon receiving a stochastic price resetting signal. Chapter one provides an introduction. Chapter two presents the basic model sketched out above. In this setting with constant labour supply, it is shown that an increase in money growth always lowers the economic growth rate due to the interaction of relative price distortions caused by money growth under price rigidity. Chapter three investigates the steady state equilibrium�s local stability properties. Chapter four shows that when innovators set a limit price, the negative impact of an increase in money growth is even stronger than under monopoly pricing. Chapter five investigates the relationship between money growth, economic growth and the steady state level of employment by endogenising labour supply. Here, it is shown that both employment and growth are inverted U-shaped functions of money growth peaking always at money growth rates associated with positive inflation rates. Chapter six concludes.English
    Kromen, Bettinabettina@kromen.de
    URN: urn:nbn:de:hbz:38-19801
    Subjects: Economics
    Uncontrolled Keywords:
    Geldmengenwachstum , Inflation , Wirtschaftswachstum , Beschäftigung , Nominale PreisrigiditätGerman
    Money growth , Inflation , Economic growth , Employment , Nominal price rigidityEnglish
    Faculty: Wirtschafts- u. Sozialwissenschaftliche Fakultät
    Divisions: Wirtschafts- u. Sozialwissenschaftliche Fakultät > Staatswissenschaftliches (Volkswirtschaftliches) Seminar
    Language: German
    Date: 2006
    Date Type: Completion
    Date of oral exam: 17 January 2007
    Full Text Status: Public
    Date Deposited: 11 Apr 2007 09:20:28
    NameAcademic Title
    Funk, PeterProf. Dr.
    URI: http://kups.ub.uni-koeln.de/id/eprint/1980

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