Dynamic Behavior of Capital Accumulation in a Cash-in-Advance Model

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Economics
Finance and Financial Management
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Abel, Andrew B
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This paper analyzes the dynamic behavior of capital accumulation in Stockman's cash-in-advance model. If the cash-in-advance constraint applies only to consumption, then money is superneutral along the transition path as well as in the long run. Alternatively, if the cash-in-advance constraint applies to gross investment as well as consumption, then a permanent increase in the rate of monetary growth reduces the steady state capital stock. The effect on the speed of adjustment depends on the sign of a certain simple function of the parameters of preferences and technology.

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1985-07-01
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Journal of Monetary Economics
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