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 techn ology. A monetary equilibrium that either satisfies the Friedman rule of th e optimum quantity of money or accommodates the zero-inflation-rate policy is dynamically unstable. With Cagan-like hyperinflation, the monetary equil ibrium may either be unstable or exhibit dynamic indeterminacy in which a v ariety of equilibrium outcomes emerge in transition. The rate of monetary e xpansion, the relative magnitudes of the intertemporal elasticity of substi tution and the production technological parameter are crucial for determini ng the stability property of the model. (C) 2002 Elsevier Science B.V. All rights reserved.