Money, Human Capital, and Growth

Our purpose is to examine the effect of monetary expansion on capital accumulation and economic growth in an overlapping generations model with the growth engine of human capital accumulation. It is shown that, under the money-in-the-utility-function approach, money growth stimulates human capital accumulation of individuals, through asset demand shifts from money to capital and arbitrage movements from physical to human capital. So it also boosts balanced-equilibrium growth of the economy. Thus, the positive growth effect of monetary expansion is immune to changes from physical to human capital as the growth engine.