Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/71214
Authors: 
Kaas, Leo
Weinrich, Gerd
Year of Publication: 
2000
Series/Report no.: 
Reihe Ökonomie / Economics Series, Institut für Höhere Studien (IHS) 86
Abstract: 
We consider a Diamond-type model of endogenous growth in which there are three assets: outside money, government bonds, and equity. Due to productivity shocks, the equity return is uncertain, and risk averse investors require a positive equity premium. Typically, there exist two steady states, but only one of them is stable, both in the forward perfect foresight dynamics and under adaptive expectations. Tight monetary policy is harmful for growth in the stable steady state. These results hold under four different monetary policy strategies applied by the monetary authority. A monetary contraction increases the bond return, reduces the equity premium and thereby capital investment and growth.
Subjects: 
monetary policy
endogenous growth
equity premium
JEL: 
D84
E52
O42
Document Type: 
Working Paper

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