We consider a perpetual youth model in which real balances are an argument of the utility function. We show that dynamic efficiency is compatible with a positive inflation rate, and that the higher inflation, the larger is the size of the bubble required to remove the inefficiency.
Femminis, G., Money Growth, Dynamic Efficiency and Asset Bubbles in a Perpetual Youth Model, <<ECONOMICS LETTERS>>, 2016; 2016/138 (N/A): 68-71. [doi:10.1016/j.econlet.2015.11.029] [http://hdl.handle.net/10807/73513]
Money Growth, Dynamic Efficiency and Asset Bubbles in a Perpetual Youth Model
Femminis, GianlucaPrimo
2016
Abstract
We consider a perpetual youth model in which real balances are an argument of the utility function. We show that dynamic efficiency is compatible with a positive inflation rate, and that the higher inflation, the larger is the size of the bubble required to remove the inefficiency.
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