Hostname: page-component-78c5997874-j824f Total loading time: 0 Render date: 2024-11-10T09:50:13.777Z Has data issue: false hasContentIssue false
  • English
  • Français

MONETARY RULES AND ENDOGENOUS GROWTH IN AN OPEN ECONOMY

Published online by Cambridge University Press:  27 April 2012

Ching-Chong Lai  and
Chi-Ting Chin
Ching-Chong Lai*
Affiliation:
Institute of Economics, Academia Sinica, National Sun Yat-Sen University and Feng Chia University
Chi-Ting Chin
Affiliation:
Ming Chuan University
*
Address correspondence to: Ching-chong Lai, Institute of Economics, Academia Sinica, Nankang, Taipei 115, Taiwan; e-mail: cclai@econ.sinica.edu.tw.
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper develops a monetary endogenous growth model for an open economy. The salient feature of the model is that it is able to deal with various monetary policy rules, including money growth rate targeting, inflation rate targeting, and nominal income growth rate targeting. It is found that a rise in the pegged rate may either increase or decrease the balanced-growth rate under regimes of both money growth rate targeting and nominal income growth targeting. However, a rise in the pegged rate is sure to depress the balanced-growth rate under the regime of inflation rate targeting. It is also found that money growth rate targeting is fundamentally equivalent to nominal income growth rate targeting if a specific restriction is imposed, and inflation rate targeting is not qualitatively equivalent to either money growth rate targeting or nominal income growth rate targeting.

Keywords

Endogenous GrowthMonetary Policy RulesEquivalence
Type
Articles
Information
Macroeconomic Dynamics , Volume 17 , Issue 2 , March 2013 , pp. 431 - 463
Copyright
Copyright © Cambridge University Press 2012

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Abel, Andrew B. and Blanchard, Olivier J. (1983) An intertemporal model of saving and investment. Econometrica 51, 673–692.CrossRefGoogle Scholar
Buiter, Willem H. (1984) Saddlepoint problems in continuous time rational expectations models: A general method and some macroeconomic examples. Econometrica 52, 665–680.CrossRefGoogle Scholar
Burmeister, Edwin (1980) On some conceptual issues in rational expectations modeling. Journal of Money, Credit, and Banking 12, 800–816.CrossRefGoogle Scholar
Chang, Wen-Ya and Lai, Ching-Chong (2000) Anticipated inflation in a monetary economy with endogenous growth. Economica 67, 399–417.CrossRefGoogle Scholar
Chen, Shu-Hua and Guo, Jang-Ting (2008) Velocity of money, equilibrium (in)determinacy and endogenous growth. Journal of Macroeconomics 30, 1085–1096.CrossRefGoogle Scholar
Eicher, Theo S. and Turnovsky, Stephen J. (1999) International capital markets and non-scale growth. Review of International Economics 7, 171–188.CrossRefGoogle Scholar
Feichtinger, Gustav, Kort, Peter, Hartl, Richard F., and Wirl, Franz (2001) The dynamics of a simple relative adjustment cost framework. German Economic Review 2, 255–268.CrossRefGoogle Scholar
Gomme, Paul (1993) Money and growth revisited: Measuring the costs of inflation in an endogenous growth model. Journal of Monetary Economics 32, 51–77.CrossRefGoogle Scholar
Guender, Alfred V. and Tam, Julie (2004) On the performance of nominal income targeting as a strategy for monetary policy in a small open economy. Journal of International Money and Finance 23, 143–163.CrossRefGoogle Scholar
Guo, Jang-Ting and Harrison, Sharon G. (2004) Balanced-budget rules and macroeconomic (in)stability. Journal of Economic Theory 119, 357–363.CrossRefGoogle Scholar
Gylfason, Thorvaldur and Herbertsson, Tryggvi Thor (2001) Does inflation matter for growth? Japan and the World Economy 13, 405–428.CrossRefGoogle Scholar
Hayashi, Fumio (1982) Tobin's marginal and average q: A neoclassical interpretation. Econometrica 50, 213–224.CrossRefGoogle Scholar
Itaya, Jun-Ichi and Mino, Kazuo (2003) Inflation, transaction costs and indeterminacy in monetary economies with endogenous growth. Economica 70, 451–470.CrossRefGoogle Scholar
Itaya, Jun-Ichi and Mino, Kazuo (2007) Technology, preference structure, and the growth effect of money supply. Macroeconomic Dynamics 11, 589–612.CrossRefGoogle Scholar
Jha, Sailesh K., Wang, Ping, and Yip, Chong K. (2002) Dynamics in a transactions-based monetary growth model. Journal of Economic Dynamics and Control 26, 611–635.CrossRefGoogle Scholar
Lai, Ching-Chong, Chen, Shu-Hua, and Shaw, Ming-Fu (2005) Nominal income targeting versus money growth targeting in an endogenously growing economy. Economics Letters 86, 359–366.CrossRefGoogle Scholar
Lucas, Robert Jr. (1988) On the mechanics of economic development. Journal of Monetary Economics 22, 3–42.CrossRefGoogle Scholar
Marquis, Milton H. and Reffett, Kevin L. (1991) Real interest rates and endogenous growth in a monetary economy. Economics Letters 37, 105–109.CrossRefGoogle Scholar
McCallum, Bennett T. and Nelson, Edward (1999) Nominal income targeting in an open-economy optimizing model. Journal of Monetary Economics 43, 553–578.CrossRefGoogle Scholar
Meade, James E. (1978) The meaning of internal balance. Economic Journal 88, 423–435.CrossRefGoogle Scholar
Mino, Kazuo (1997) Long-run effects of monetary expansion in a two-sector model of endogenous growth. Journal of Macroeconomics 19, 635–655.CrossRefGoogle Scholar
Mino, Kazuo and Shibata, Akihisa (1995) Monetary policy, overlapping generations, and patterns of growth. Economica 62, 179–194.CrossRefGoogle Scholar
Palokangas, Tapio (1997) Inflation and growth in an open economy. Economica 64, 509–518.CrossRefGoogle Scholar
Poole, William (1970) Optimal choice of monetary policy instruments in a small stochastic macro-model. Quarterly Journal of Economics 84, 197–216.CrossRefGoogle Scholar
Razin, Assaf and Yuen, Chi-Wa (1996) Capital income taxation and long-run growth: New perspectives. Journal of Public Economics 59, 239–263.CrossRefGoogle Scholar
Rebelo, Sergio (1991) Long-run policy analysis and long-run growth. Journal of Political Economy 99, 500–521.CrossRefGoogle Scholar
Romer, Paul M. (1986) Increasing returns and long-run growth. Journal of Political Economy 94, 1002–1037.CrossRefGoogle Scholar
Schabert, Andreas (2003) On the Equivalence of Money Growth and Interest Rate Policy. Unpublished manuscript, University of Cologne.Google Scholar
Shaw, Ming-Fu, Lai, Ching-Chong, and Chang, Wen-Ya (2005) Anticipated policy and endogenous growth in a small open monetary economy. Journal of International Money and Finance 24, 719–743.CrossRefGoogle Scholar
Suen, Ming-Hon and Yip, Chong K. (2005) Superneutrality, indeterminacy and endogenous growth. Journal of Macroeconomics 27, 579–595.CrossRefGoogle Scholar
Tobin, James (1980) Stabilization policy ten years after. Brookings Papers on Economic Activity 1, 19–72.CrossRefGoogle Scholar
Turnovsky, Stephen J. (1996) Fiscal policy, growth, and macroeconomic performance in a small open economy. Journal of International Economics 40, 41–66.CrossRefGoogle Scholar
Turnovsky, Stephen J. (1997) Equilibrium growth in a small economy facing an imperfect world capital market. Review of Development Economics 1, 1–22.CrossRefGoogle Scholar
Turnovsky, Stephen J. (2000) Methods of Macroeconomic Dynamics, 2nd ed.Cambridge, MA: MIT Press.Google Scholar
Turnovsky, Stephen J. (2002a) Growth in an open economy: Some recent developments. In Dombrecht, M. and Smets, J. (eds.), How to Promote Economic Growth in the Euro Areas, pp. 9–56. Cheltenham, UK: Edward Elgar.Google Scholar
Turnovsky, Stephen J. (2002b) Knife-edge conditions and the macrodynamics of small open economies. Macroeconomic Dynamics 6, 307–335.CrossRefGoogle Scholar
Van der Ploeg, Frederick (1996) Budgetary policies, foreign indebtedness, the stock market, and economic growth. Oxford Economic Papers 48, 382–396.CrossRefGoogle Scholar
Van der Ploeg, Frederick and Alogoskoufis, George S. (1994) Money and endogenous growth. Journal of Money, Credit and Banking 26, 771–791.CrossRefGoogle Scholar
Végh, Carlos A. (2001) Monetary Policy, Interest Rate Rules, and Inflation Targeting: Some Basic Equivalences. NBER working paper 8684.CrossRefGoogle Scholar
Wang, Ping and Yip, Chong K. (1992) Alternative approaches to money and growth. Journal of Money, Credit and Banking 24, 553–562.CrossRefGoogle Scholar
Yip, Chong K. and Li, Ka Fai (2006) Monetary Policy Targeting and Economic Growth: An Equivalence Investigation. Unpublished manuscript, Chinese University of Hong Kong.Google Scholar
Zhang, Junxi (1996) A simple pecuniary model of money and growth with transactions cost. Journal of Macroeconomics 18, 127–137.CrossRefGoogle Scholar