This paper examines how the relative shares of public and private health expenditures impact income inequality. We study a two period overlapping generation's growth model in which longevity is determined by both private and public health expenditure and human capital is the engine of growth. Increased investment in health, reduces mortality, raises return to education and affects income inequality. In such a framework we show that the cross-section earnings inequality is non-decreasing in the private share of health expenditure. We test this prediction empirically using a variable that proxies for the relative intensity of investments (private versus public) using vaccination data from the National Sample Survey Organization for 76 regions in India in the year 1986-87. We link this with region-specific expenditure inequality data for the period 1987-2012. Our empirical findings, though focused on a specific health investment (vaccines), suggest that an increase in the share of the privately provided health care results in higher inequality.

There have been large changes in the velocity of money which could be a potential source of inflation variability. This article investigates how the velocity of money affects inflation dynamics by estimating the Phillips curve derived from a New Keynesian model in which money is introduced via transactions technology. The resultant Phillips curve becomes a function of velocity as well as an output gap and a forward looking inflation terms, a feature for which we provide empirical support. Specifically, we adopt the GMM methodology to estimate the velocity-augmented forward looking Phillips curve using the US data between 1951 and 2005. We observe that historical inflation dynamics is consistent with the view.

We introduce borrowing constraints into a two‐sector Schumpeterian growth model and examine the impact of asset price bubbles on innovation. In this environment, rational bubbles arise when the intermediate good producing R&D sector is faced with adverse productivity shocks. Importantly, these bubbles help alleviate credit constraints and facilitate innovation in the stagnant economy. On the policy front, we make a case for debt financed credit to the R&D sector. Further, we establish that a constant credit growth rule (akin to the Friedman rule) outperforms the often prescribed counter‐cyclical “lean against the wind” credit policy. (JEL E32, E44, O40)

This paper evaluates quantitatively the effect of real money balances in a New Keynesian framework. Money in our model facilitates transactions and is introduced through a transactions cost technology. This technology acts like a distortionary consumption tax which varies endogenously with the nominal interest rate. In this setup the resultant Phillips curve becomes a function of the nominal interest rate. Our analysis has important policy implications. First, we find, unlike Woodford (2003), accounting for real-balance effects does not result in the policy maker's loss function having an interest rate smoothing term. Second, we show that in the case of a temporary shock to productivity the optimal policy response under discretion is to allow for a trade-off between inflation and the output gap. This trade-off arises endogenously in our model. The quantitative effects on the macroeconomic variables are found to be significant.

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