Abstract:
The paper develops a dynamic general equilibrium monetary endogenous
growth model. The closed economy model is inhabited by consumers, firms, a
Cournotian monopolistically competitive banking system, besides, an inflationtargeting
monetary authority, and, in turn, analyzes the effect of a tight monetary
(disinflationary) policy on growth. We show that the effect of a lower
inflation target on growth is ambiguous, with the ultimate effect depending on
the initial levels of growth and the individual bank size, besides, a whole host
of structural parameters defining the preferences and the production structure
of the economy.
