Inflation, Virtual Economy, Resource Allocation and Endogenous Growth
Read
DownLoad |
| Title | Inflation, Virtual Economy, Resource Allocation and Endogenous Growth
|
| Author | He Qichun and Zou Hengfu |
| Organization | Central University of Finance and Economics |
| Email | qichunhe@gmail.com；heqichun@cufe.edu.cn |
| Key Words | Credit Inflation; Resource Allocation; Entrepreneurial Innovation; Economic Growth |
| Abstract | In this paper we study the credit inflation initiated by the banking system. We introduce money via the production function, which imposes an upper limit for the banks to increase credit inflation. The banks can reap revenue (similar to seignorage revenue) from credit inflation. If the majority of the revenue goes to the entrepreneurs, then the balanced growth rate will be higher. In contrast, if the majority of the revenue is retained by the banks, then it will attract more labor into the banking sector. Less labor left to be employed by the entrepreneurs would lower the return to entrepreneurship, ending up lowering long-run growth. In this case the government might pursue more expansionary monetary policy, forming a vicious cycle. In proper situation, the government may find it desirable to gradually give up expansionary monetary policy in certain areas that rely more on virtual economy, avoiding a substantial shock to the economy. |
| Serial Number | WP806 |
| Time | 2015-01-16 |
|