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Liquidity, innovation and growth

Berentsen, Aleksander; Rojas Breu, Mariana; Shi, Shouyong (2012), Liquidity, innovation and growth, Journal of Monetary Economics, 59, 8, p. 721-737. 10.1016/j.jmoneco.2012.10.005

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Type
Article accepté pour publication ou publié
Date
2012
Journal name
Journal of Monetary Economics
Volume
59
Number
8
Publisher
Elsevier
Pages
721-737
Publication identifier
Metadata
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Author(s)
Berentsen, Aleksander
Department of Business and Economics - University of Basel
Rojas Breu, Mariana
Laboratoire d'Economie de Dauphine [LEDa]
Shi, Shouyong
Abstract (EN)
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.
Subjects / Keywords
Inflation; Growth; Search; Innovation; Credit
JEL
O42 - Monetary Growth Models
E50 - General