Tight money and inflation: Further Results |
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Authors: | Allan Drazen |
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Institution: | Tel-Aviv University, Ramat Aviv, Israel, 69978 |
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Abstract: | The Sargent-Wallace results on inflationary effects of monetary restraint are considered in a Sidrauski money growth model when the utility function is unrestricted except for separability. Temporary monetary tightening will eventually lead to higher inflation when the deficit is fixed only if the elasticity of money demand with respect to the money growth rate is less than unity. It is also shown that for inflation to rise immediately further requires the elasticity with respect to the nominal interest rate to be no less than unity. |
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