A Clower constraint model of unbacked money

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The stylized monetary facts - (1) money growth causes inflation, (2) inflation is bad, (3) money demand depends upon the nominal interest rate, (4) the real interest rate equals a parametrically fixed rate of time preference, and (5) investment depends upon the real interest rate - are produced in a Grandmont-Younes modified Clower constraint model of money. Inflation is distorting, but is no one's intertemporal rate of substitution. Inflation discourages trade, but not investment. As a by-product the Friedman hypothesis, that the optimal deflation equals the rate of time preference, is confirmed in the model. © 1985.




Bryant, J. (1985). A Clower constraint model of unbacked money. Journal of Banking and Finance, 9(2), 289–295. https://doi.org/10.1016/0378-4266(85)90024-X

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