Monetary growth with the Solow, Tobin, IS-LM/ AD-AS, and Dixit-Stiglitz models synthesized
Keywords:
AD-As model, Dixit-Stiglitz model, inflation policy, IS-LM model, monopolistic competition, profitAbstract
Purpose: This paper is to analyze dynamic interactions between economic growth, capital and wealth accumulation, change in welfare, leisure time, inflation, and inflation policy, and government bond in an economy with monopolistic and perfect competition. It aims to integrate various economic mechanisms in different theories in a comprehensive framework to provide some new theoretical insights into complex of economic interactions with microeconomic foundation. Methodology: The work is a theoretical macroeconomic growth model, synthesizing a few influential mathematical models in modern macroeconomics. The growth mechanism and perfect competition are built on the Solow one-sector growth model. Money and growth with inflation are influenced by the Tobin growth model with money. The modeling of monopolistic competition follows the Dixit-Stiglitz approach. Our approach is also closely related to the IS-LM model and the AD-AS model. Findings: We build the model and simulate it to show behavior of the economic structural change. The system contains a unique equilibrium point. We describe the movement of the economy by simulation. We show the consequences of exogenous shifts in some parameters on the economic
development in short-term transition. Implications: We find how monetary variables interact with real variables, whose connections cannot be explained by traditional models within a single framework. It also shows that the government inflation may have positive economic effects in short term, but uncertain consequences in the long term. The uncertainty is due to instabilities of the monetary economy. Originality: This paper makes an original contribution to the literature of growth theory with money by synthesizing some well-known models in a comprehensive analytical framework. The dynamic interactions between variables cannot be explained in the traditional separated approaches.
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