Search, inflation and capital accumulation

This paper constructs a model to integrate the search monetary theory into a neoclassical growth model. With divisible goods and money, the model is u sed to examine the relationship between money growth and capital accumulati on. The framework uncovers a distinct extensive effect that an increase in the money growth rate increases the frequency of successful trades by incre asing the number of agents in the market. This positive extensive effect on the number of trades can dominate the conventional negative intensive effe cts of money growth on individuals' labor input and real money balance, in which case increasing the money growth rate increases aggregate capital and output. (C) 1999 Elsevier Science B,V, All rights reserved. JEL classifica tion: E40; E50.