Abstract:
We develop an overlapping generations monetary endogenous growth (generated by
productive public expenditures) model with inflation targeting, characterized by relocation shocks for
young agents, which in turn generates a role for money (even in the presence of the return-dominating
physical capital) and financial intermediaries. Based on this model, we show that growth dynamics
emerge with a S-shaped growth path producing three equilibria. The low and high-growth equilibria
are stable, but locally indeterminate, while the medium-growth equilibrium is unstable. Since,
government expenditure is productive in our model, a higher inflation-target would translate into
higher growth, but under multiple equilibria, this is not necessarily always the case.
