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Money and Growth Revisited

Discussion Paper 55 | Published November 1, 1991

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Author

Paul Gomme

Money and Growth Revisited

Abstract

Results in Lucas (1987) suggest that if public policy can affect the growth rate of the economy, the welfare implications of alternative policies will be large. In this paper, a stochastic, dynamic general equilibrium model with endogenous growth and money is examined. In this setting, inflation lowers growth through its effect on the return to work. However, the welfare costs of higher inflation are modest.