Convergence, financial development, and policy analysis

Abstract

We study the relationship among inflation, economic growth, and financial development in a Schumpeterian overlapping-generations model with credit constraints. In the baseline case money is super-neutral. When the financial development exceeds some critical level, the economy catches up and then converges to the growth rate of the world technology frontier. Otherwise, the economy converges to a poverty trap with a growth rate lower than the frontier and with inflation decreasing with the level of financial development. We then study efficient allocation and identify the sources of inefficiency in a market equilibrium. We show that a particular combination of monetary and fiscal policies can make a market equilibrium attain the efficient allocation.

Inflation, innovation, and growth: A survey

“…He and Zou (2016) find a positive seigniorage effect of monetary expansion on R&D in a monetary Schumpeterian growth model and provide supportive evidence based on time-series data in China. Lin et al (2020) introduce credit constraints to a monetary Schumpeterian growth model and derive interesting implications of financial development on economic growth and convergence. Mao et al (2019) model a banking sector, which allows them to analyze additional monetary policy instruments, such as the required reserve ratio and the leverage ratio.…”

“…Lin et al. (2020) introduce credit constraints to a monetary Schumpeterian growth model and derive interesting implications of financial development on economic growth and convergence. Mao et al.…”

Inflation, Unemployment, and Economic Growth in a Schumpeterian Economy*

“…(2019), and Lin et al . (2020) also analyze the relationship between inflation and economic growth in the Schumpeterian model; however, none of these studies features matching frictions in the labor market. Hori (2020) considers financial frictions in a monetary Schumpeterian growth model, whereas the present study provides a novel contribution to the literature by introducing equilibrium unemployment driven by matching frictions to the monetary Schumpeterian growth model.…”

A theory of National Development Bank: long-term investment and the agency problem

“…For simplicity, we assume that the infrastructure project generates an exogenous welfare Baerlocher (2022). andLin et al (2020) study how fiscal expense and infrastructure affect household welfare endogenously.10 A detailed description for the first-best case is sketched in the Appendix C.…”