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Can growth-enhanced monetary policy improve welfare when people seek social status?

Author

Listed:
  • Hsiu-Yun Lee
  • Yu-Lin Wang
  • Wen-Ya Chang
Abstract
This paper examines the growth and welfare effects from an increase in the rate of money supply in an Ak type growth model with a relative wealth-enhanced social status motive, production externalities, and liquidity constraints. When only consumption is constrained by liquidity, fast money supply can hasten output growth unless seigniorage revenue is wasted and production externalities do not exist. We find that even though money growth normally promotes economic growth, it does not improve welfare when capital stock is over-accumulated. In general, an optimal monetary policy minimizes seigniorage. Our results also conclude that the optimal monetary policy rarely follows the Friedman rule. Copyright Springer-Verlag Wien 2013

Suggested Citation

  • Hsiu-Yun Lee & Yu-Lin Wang & Wen-Ya Chang, 2013. "Can growth-enhanced monetary policy improve welfare when people seek social status?," Journal of Economics, Springer, vol. 110(3), pages 257-272, November.
    • Handle: RePEc:kap:jeczfn:v:110:y:2013:i:3:p:257-272
    DOI: 10.1007/s00712-013-0350-8
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    References listed on IDEAS

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    More about this item

    Keywords

    Wealth-enhanced social status; Production externalities; Cash-in-advance constraint; Monetary policy; O42; E52;
    All these keywords.

    JEL classification:

    • O42 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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