Inflation, Growth, and Impatience in a Generalized Cash-in-Advance Economy

Abstract

In this note, we consider a cash-in-advance (CIA) economy in which the CIA constraint applies to not only consumption but also to all or part of investment and where the discounting rate is a function of consumption. We use this economy to investigate the effects of monetary growth on capital, money, consumption, and welfare. We find that as long as the condition assuring the uniqueness of the steady state holds, the effect of monetary growth on all of these variables is negative, though mitigated by the positive slope of the discounting function. Using this result, we establish a qualitative equivalence between the money-in-the-utility, transaction-cost, and CIA models.