Abstract:
The paper develops a dynamic general equilibrium monetary endogenous
growth model of a closed economy inhabited by consumers, firms, a Cournotian monopolistically competitive banking system, besides, an inflation-targeting monetary authority, and, in turn, analyzes the effect of a tight monetary (disinflationary) policy on growth. We show
that the effect of lower inflation target on growth is ambiguous, with the ultimate effect depending on the initial level of growth, the individual bank size, the degree of risk aversion, the elasticity of output with respect to capital, the discount factor and the size of the
cash-reserve ratio.
