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 language | English |
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Pages (from-to) | 1309-1323 |
Number of pages | 15 |
Journal | Journal of Money, Credit and Banking |
Volume | 40 |
Issue number | 6 |
DOIs | |
Publication status | Published - 2008 Sept |
Externally published | Yes |
Keywords
- Endogenous time preferences
- Qualitative equivalence
- Superneutrality
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics