When and Under What Conditions can Inflation Positively Affect Economic Growth?

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Title: When and Under What Conditions can Inflation Positively Affect Economic Growth?
Author: Kidi, Ukech Ujure
Contributor: University of Helsinki, Faculty of Social Sciences, Department of Political Science
Date: 2002-10-14
Language: en
URI: http://hdl.handle.net/10138/9950
Thesis level: master's thesis
Abstract: This thesis examines the circumstances under which inflation can be growth enhancing to the economy in the long run. I base it on the literature from two economic models; a discussion paper by Palokangas (2000) and on an article by Chang, Hsieh and Lai (2000) respectively. Attempt has been made to answer the principal question of this study as summarised in the following conclusions. The model in chapter 2 assumes a developing economy in which there exists an informal private sector that distorts the ordinary taxation. We considered an economy in which public services and public capital stock could be used as input in private production. Further, we assume this public input to be rival and non-excludable. We show that growth maximisation is optimal public policy and that inflation and currency depreciation can promote growth and welfare. In this context, we show that inflation can be used to either ease the dead-weight loss in public finance or to finance public services and investments in public capital stock that can improve the productivity of the economy in the long run. Meanwhile, considering the opposing effects of inflation and the assumed conditions of this hypothetical developing economy, we concluded that inflation can be increased until an optimal rate that maximises growth and welfare is reached. In the second model, we examined the effects of wealth-enhanced social status on capital accumulation in an optimising monetary growth model with liquidity constraint on consumption. We found that inflation positively affects the steady-state level of the capital stock and when the production function takes the "AK" technological framework, an optimal inflation rate raises the long-run growth rate of the economy.
Description: Endast sammandrag. Inbundna avhandlingar kan sökas i Helka-databasen (http://www.helsinki.fi/helka). Elektroniska kopior av avhandlingar finns antingen öppet på nätet eller endast tillgängliga i bibliotekets avhandlingsterminaler.Only abstract. Paper copies of master’s theses are listed in the Helka database (http://www.helsinki.fi/helka). Electronic copies of master’s theses are either available as open access or only on thesis terminals in the Helsinki University Library.Vain tiivistelmä. Sidottujen gradujen saatavuuden voit tarkistaa Helka-tietokannasta (http://www.helsinki.fi/helka). Digitaaliset gradut voivat olla luettavissa avoimesti verkossa tai rajoitetusti kirjaston opinnäytekioskeilla.
Subject: public investment
wealth-enhanced social status
capital accumulation
long-run economic growth

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