Growth and Welfare Effects of Monetary Expansion in an Overlapping-generations Economy

This paper studies the relation between money supply and the long-run economic growth in the context of an endogenous growth model with overlapping generations. We present detailed analyses of growth and welfare effects of monetary expansion under alternative money supply rules. It is shown that, although monetary expansion has a growth-enhancing effect in the long run, in general it is not a Pareto-improving policy. We also pay much attention to the presence of multiple equilbria in endogenous money supply regimes.