Working Paper: NBER ID: w1549
Authors: Andrew B. Abel
Abstract: This paper analyzes the dynamic behavior of capital accumulationin Stockman's (1981) cash-in-advance model. If the cash-in-advance constraint applies only to consuittion, then money is superneutral along the transition path as well as in the long run. Alternatively, if the cash-in-advance constraint applies to gross investment as well as consumption, then a permanent increase in the rate of monetary growth reduces the steady state capital stock. The effect on the speed of adjustment depends on the sign of a certain simple function of the parameters of preferences and technology.
Keywords: capital accumulation; cash-in-advance model; monetary growth; superneutrality
JEL Codes: E51; E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| monetary growth (O42) | capital accumulation (E22) |
| cash-in-advance constraint applies only to consumption (D10) | monetary growth is superneutral (E49) |
| cash-in-advance constraint applies to both consumption and investment (D10) | speed of adjustment contingent on parameters (C51) |
| higher monetary growth (O42) | faster adjustment speed (C69) |
| increased monetary growth (O42) | slower adjustment (F32) |
| logarithmic utility (L97) | speed of adjustment invariant to changes in monetary growth (O42) |