Inflation and growth: Impatience and a qualitative equivalence

Been Lon Chen, Mei Hsu, Chia Hui Lu

Research output: Contribution to journalArticle

9 Citations (Scopus)

Abstract

This paper studies the role of an endogenous time preference on the relationship between inflation and growth in the long run in both the money-in-utility-function (MIUF) and transactions-costs (TC) models. We establish a qualitative equivalence between the two models in a setup without a labor-leisure tradeoff. When the time preference is decreasing (or increasing) in consumption and real balances, both the MIUF and TC models are qualitatively equivalent in terms of predicting a negative (or positive) relationship between inflation and growth in a steady state. Both a decreasing and an increasing time preference in consumption are consistent with the arguments found within the literature. While a decreasing time preference in real balances corroborates with empirical evidence, there is no evidence in support of an increasing time preference in real balances.

Original languageEnglish
Pages (from-to)1309-1323
Number of pages15
JournalJournal of Money, Credit and Banking
Volume40
Issue number6
DOIs
Publication statusPublished - 2008 Sep 1
Externally publishedYes

Keywords

  • Endogenous time preferences
  • Qualitative equivalence
  • Superneutrality

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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