Social status, inflation and endogenous growth in a cash-in-advance economy : a reconsideration using the credit channel

dc.contributor.authorGupta, Rangan
dc.contributor.authorStander, Lardo
dc.date.accessioned2018-06-15T11:24:21Z
dc.date.issued2018
dc.description.abstractConventional models of social status purport a positive inflation‐growth relationship, and attribute this empirical contradiction to the presence of a consumer's desire for social status. These models are dominated by a substitution effect of money holdings for capital holdings, as an increase in the inflation rate due to money growth raises the cost of holding money and depresses the real money holdings. Using a monetary endogenous growth model, the effects of wealth‐induced social status on long‐run growth is reconsidered. The analysis is enhanced through the addition of a competitive banking sector that intermediates the available capital in the economy, subject to a mandatory cash reserve requirement. The cash reserve requirement creates a wedge between the deposit rate and the loan rate. While the real loan rate is tied with the constant marginal product of capital, the real deposit rate is negatively related to the rate of inflation. This leads to another, opposing substitution effect of deposit holdings for real money holdings and hence, increases the cost of holding deposits as inflation increases. The consolidated theoretical model described herein supports a diverse range of theoretical findings, contingent on the presence of wealth effects or the spirit of capitalism, using a simpler and more tractable framework that accounts for the role of the banking system in monetary policy decision outcomes. Significantly, as long as the mandatory reserve requirement imposed on the banking system by the monetary authority exceeds a (small) critical value, an increase in the money growth rate will lead to a decrease in the long‐run growth rate of the economy.en_ZA
dc.description.departmentEconomicsen_ZA
dc.description.embargo2019-11-30
dc.description.librarianhj2018en_ZA
dc.description.urihttp://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1467-9957en_ZA
dc.identifier.citationGupta, R. & Stander, L. 2018, 'Social status, inflation and endogenous growth in a cash-in-advance economy: a reconsideration using the credit channel', Manchester School, NYP.en_ZA
dc.identifier.issn1467-9957 (online)
dc.identifier.issn1463-6786 (print)
dc.identifier.other10.1111/manc.12207
dc.identifier.urihttp://hdl.handle.net/2263/65162
dc.language.isoenen_ZA
dc.publisherWileyen_ZA
dc.rights© 2017 The University of Manchester and John Wiley & Sons Ltd. This is the pre-peer reviewed version of the following article : 'Social status, inflation and endogenous growth in a cash-in-advance economy: a reconsideration using the credit channel', Manchester School, vol. x, no. y, pp. z-zz, 2018, doi : 10.1111/manc.12207. The definite version is available at : http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1467-9957.en_ZA
dc.subjectCredit channelen_ZA
dc.subjectCash‐in‐advance economyen_ZA
dc.subjectSocial statusen_ZA
dc.subjectInflationen_ZA
dc.subjectEndogenous growthen_ZA
dc.titleSocial status, inflation and endogenous growth in a cash-in-advance economy : a reconsideration using the credit channelen_ZA
dc.typePostprint Articleen_ZA

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