Wealth effects in a cash-in-advance economy
journal contributionposted on 21.05.2021, 16:30 by Eric Kam, Paul Missios
This paper examines the monetary growth implications of combining Stockman's cash−in−advance constraint on consumption and capital goods and an endogenous rate of time preference that is an increasing function of real wealth. The cash−in−advance constraint imposes an investment tax that reduces steady state consumption and capital. However, endogenous time preference wealth effects link the real and monetary sectors to yield a Mundell−Tobin effect. Cash−in−advance constraint effects dominate endogenous time preference wealth effects so that monetary growth reduces steady state capital and consumption.