Monetary Policy, Overlapping Generations, and Patterns of Growth

This paper investigates the role of monetary policy in economic growth. Using an infinitely lived overlapping-generations model with a simple convex technology that can yield endogenous growth, the authors show that money supply behavior of the government may have significant effects on the long-run economic growth. In addition to the effect on the long-term growth rate of the economy, the policy may determine whether the economy stays in the exogenous growth process restricted by the growth rate of labor supply or realizes the endogenous growth that sustains continuous growth of per capita income and consumption. Copyright 1995 by The London School of Economics and Political Science.