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Eric Kam and Paul Missios
''Wealth effects in a cash-in-advance economy''
( 2003, Vol. 5 No.2 )
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.
Keywords: cash-in-advance constraints
E4 - Money and Interest Rates: General
Manuscript Received : Mar 26 2003 Manuscript Accepted : Mar 30 2003

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