Dynamics in a Transactions-Based Monetary Growth Model

This paper characterizes the dynamics of a monetary endogenous growth model in which money is introduced into the system via a transactions-cost technology. A monet-ary equilibrium that either satisfies the Friedman rule of the optimum quantity of money or accommodates the zero-inflation-rate policy is dynamically unstable. With Cagan-like hyperinflation, the monetary equilibrium may either be unstable or exhibit dynamic indeterminacy in which a variety of equilibrium outcomes emerge in transition. The rate of monetary expansion, the relative magnitudes of the intertemporal elasticity of substitu-tion and the production technological parameter are crucial for determining the stabilit