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Inflation And The Public Deficit When The Utility Of Money Is Insatiable

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  • ALEJANDRO RODRÍGUEZ‐ARANA

Abstract

When the marginal utility of money is positive even at very high levels of the asset (Yoshiyasu Ono's, 1994, assumption), the relationship between inflation and the public deficit at full employment may result in a unique perverse equilibrium where higher deficits reduce inflation. If there are two equilibria, the low inflation equilibrium is one where the perverse effect between inflation and the public deficit prevails; while in the high inflation equilibrium higher public deficits increase inflation. These results contrast sharply with traditional results found in the literature.

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  • Alejandro Rodríguez‐Arana, 2007. "Inflation And The Public Deficit When The Utility Of Money Is Insatiable," The Japanese Economic Review, Japanese Economic Association, vol. 58(2), pages 238-254, June.
    • Handle: RePEc:bla:jecrev:v:58:y:2007:i:2:p:238-254
    DOI: 10.1111/j.1468-5876.2007.00347.x
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    1. Willem H. Buiter, 1990. "Principles of Budgetary and Financial Policy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262524139, December.
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    1. Yoshiyasu Ono, 2010. "Trade Policy, Exchange Rate Adjustment and Unemployment," Chapters, in: Noel Gaston & Ahmed M. Khalid (ed.), Globalization and Economic Integration, chapter 7, Edward Elgar Publishing.
    2. Gerhard Illing & Yoshiyasu Ono & Matthias Schlegl, 2016. "Asset Prices and Leverage in a Model of Persistent Stagnation," ISER Discussion Paper 0988, Institute of Social and Economic Research, Osaka University.
    3. Illing, Gerhard & Ono, Yoshiyasu & Schlegl, Matthias, 2018. "Credit booms, debt overhang and secular stagnation," European Economic Review, Elsevier, vol. 108(C), pages 78-104.
    4. Ryu‐ichiro Murota & Yoshiyasu Ono, 2012. "Zero Nominal Interest Rates, Unemployment, Excess Reserves And Deflation In A Liquidity Trap," Metroeconomica, Wiley Blackwell, vol. 63(2), pages 335-357, May.
    5. Hashimoto, Ken-ichi & Ono, Yoshiyasu, 2020. "A simple aggregate demand analysis with dynamic optimization in a small open economy," Economic Modelling, Elsevier, vol. 91(C), pages 89-99.
    6. Yoshiyasu Ono & Junichiro Ishida, 2014. "On Persistent Demand Shortages: A Behavioural Approach," The Japanese Economic Review, Japanese Economic Association, vol. 65(1), pages 42-69, March.
    7. Ken-ichi Hashimoto, 2015. "Tariffs, Offshoring and Unemployment in A Two-Country Model," The Japanese Economic Review, Japanese Economic Association, vol. 66(3), pages 371-392, September.
    8. Schlegl, Matthias & Illing, Gerhard & Ono, Yoshiyasu, 2017. "Asset Prices and Leverage in a Model of Persistent Stagnation," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168174, Verein für Socialpolitik / German Economic Association.
    9. Yoshiyasu Ono, 2014. "International Economic Interdependence and Exchange-rate Adjustment under Persistent Stagnation," The Japanese Economic Review, Japanese Economic Association, vol. 65(1), pages 70-92, March.
    10. Yoshiyasu Ono, 2015. "Growth, Secular Stagnation and Wealth Preference," ISER Discussion Paper 0946, Institute of Social and Economic Research, Osaka University.

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