Money, Labour Supply and Growth in a Liquidity Costs Economy

This paper examines the steady-state implications of anticipated inflation within an exogenous monetary growth model with liquidity costs and an endogenous labour supply. Whether or not money is superneutral depends upon the utility function chosen. Monetary growth leaves capital and labour unaffected, when a constant relative risk aversion class of utility functions (with consumption and leisure Edgeworth dependent) is employed. If instead consumption and leisure are Edgeworth independent and at the same time preferences are isoelastic in consumption, what matters for detecting the final effects of long run inflation on capital and labour is the consumption intertemporal elasticity of substitution.