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Money Supply and Capital Accumulation on the Transition Path Revisited

  • Economics


Fischer (1979) and Asako (1983) analyze the sign of the correlation between the growth rate of money and the rate of capital accumulation on the transition path. Both plug a constant relative risk aversion utility (based on a Cobb-Douglas and a Leontief function, respectively) into Sidrauski's model-yet return contrasting results. The present analysis, by using a more general CES utility, presents both of those settings and conclusions as limiting cases and generates economic figures more consistent with reality (e.g., the interest rate elasticity of the money demands derived from those previous works is necessarily 1 and 0, respectively). Copyright (c) 2010 The Ohio State University.

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