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Inflation, Volatile Public Spending, and Endogenously Sustained Growth

Author

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  • Dimitrios Varvarigos

    (Department of Economics - Department of Economics)

Abstract

I construct a model of an economy whose government finances volatile public spending via money creation. The model jointly accounts for the emergence of some well-known empirical observations. Specifically, it predicts a negative correlation between output growth and policy volatility. Furthermore, given that both the mean and the variance of the inflation rate are elevated by fluctuations in public spending, the model provides a novel theoretical justification for the simultaneous negative correlation of long-run growth with both average inflation and inflation variability. The model also supports the view that policy volatility reduces social welfare.

Suggested Citation

  • Dimitrios Varvarigos, 2010. "Inflation, Volatile Public Spending, and Endogenously Sustained Growth," Post-Print hal-00732760, HAL.
    • Handle: RePEc:hal:journl:hal-00732760
    DOI: 10.1016/j.jedc.2010.05.014
    Note: View the original document on HAL open archive server: https://hal.science/hal-00732760
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    References listed on IDEAS

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    Cited by:

    1. The Anh Pham, 2018. "Policy volatility and growth," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 17(2), pages 87-97, July.
    2. Kontogiannis, Nikolaos & Litina, Anastasia & Varvarigos, Dimitrios, 2019. "Occupation-induced status, social norms, and economic growth," Journal of Economic Behavior & Organization, Elsevier, vol. 163(C), pages 348-360.
    3. Kassouri, Yacouba & Altıntaş, Halil, 2021. "Cyclical drivers of fiscal policy in sub-Saharan Africa: New insights from the time-varying heterogeneity approach," Economic Analysis and Policy, Elsevier, vol. 70(C), pages 51-67.
    4. Dimitrios Varvarigos & Nikolaos Kontogiannis, 2017. "Entrepreneurial Status, Social Norms, and Economic Growth," Discussion Papers in Economics 17/05, Division of Economics, School of Business, University of Leicester.
    5. Tai Dang Nguyen, 2016. "Impact Of Government Spending On Inflation In Asian Emerging Economies: Evidence From India, China, And Indonesia," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 64(05), pages 1171-1200, December.

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    More about this item

    Keywords

    E13; E31; O42; Growth; Inflation; Seignorage; Volatility;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • O42 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models

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