Abstract
We consider a Diamond-type model of endogenous growth in which there are three assets: fiat money, government bonds, and equity. Because of productivity shocks, the equity
return is uncertain, and risk-averse investors require a positive equity premium. Typically,
there exist two steady states, but only one of them turns out to be stable. Tight monetary
policy is harmful for growth in the stable steady state. These results hold under four
different monetary policy strategies applied by the monetary authority. A monetary
contraction increases the bond return and reduces the equity premium and thereby capital
investment and growth.
Lingua originale | English |
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pagine (da-a) | 670-690 |
Numero di pagine | 21 |
Rivista | Macroeconomic Dynamics |
Volume | 2003 |
Stato di pubblicazione | Pubblicato - 2003 |
Keywords
- Endogenous Growth
- Monetary Policy
- Overlapping Generations