Inflation and Growth in an Open Economy.

This paper examines the relationship between growth and inflation in an open economy where private agents can transfer resources abroad. To obtain endogenous growth, the author assumes that the international credit market is imperfect. He shows that, when the governments behave rationally, the growth and inflation rates should not be correlated and that the optimal inflation rate can be found by setting the interest rate elasticity of money holdings equal to the tax rate elasticity of the tax base. Copyright 1997 by The London School of Economics and Political Science