Non−separable utility, wealth effects, and economic growth in a monetary economy

This paper investigates the effects of wealth−enhanced social status using an optimizing monetary growth model with non−separable utility function between consumption and wealth. Within this framework, we first arrive a conclusion that, in the case of no wealth effects, an increase in the rate of money growth does not stimulate the steady−state growth rate. Moreover, in the case of existing wealth effects, we show that an increase in the rate of money growth has a negative effect on the long−run growth rate of the economy. This result is in sharp contrast with the typical conclusion of the relevant field. I would like to thank Tadahiko Tokita, Kazumi Asako, an anonymous referee, and the Associate Editor Ping Wang for their valuable comments and suggestions that have improved the paper. All remaining errors are mine. Citation: Hosoya, Kei, (2002) "Non−separable utility, wealth effects, and economic growth in a monetary economy." Economics Bulletin, Vol. 15, No. 10 pp. 1−7 Submitted: October 30, 2002. Accepted: December 27, 2002. URL: http://www.economicsbulletin.com/2002/volume15/EB−02O40014A.pdf