Ryu-ichiro Murota

Growth, Stagnation and Status Preference

We show that an economy grows or stagnates depending on which of three objects people most esteem as tokens of status. If the main object of status preference is consumption, then a steady state with full employment is reached. If it is physical capital (which is a producible asset), then permanent growth with full employment occurs. However, if it is money (which is not a producible asset), stagnation with persistent unemployment arises.

Zero Nominal Interest Rates, Unemployment, Excess Reserves and Deflation in a Liquidity Trap

We present a dynamic and monetary model that consistently explains such various phenomena as unemployment, deflation, zero nominal interest rates and excess reserves held by commercial banks. These phenomena are commonly observed during the Great Depression in the United States, the recent long-run stagnation in Japan, and the worldwide financial crisis triggered by the US subprime loan problem of 2008. We show that an excessive liquidity preference leads to a liquidity trap and thereby generates the phenomena.

A Reinterpretation of the Keynesian Consumption Function and Multiplier Effect

We propose a microeconomic foundation of the multiplier effect and that of the consumption function using a dynamic optimization model that explains a shortage of aggregate demand and unemployment. We show that government purchases boost aggregate demand through a multiplier-like process but that the implication is quite different. It works through not an increase in disposable income but moderation of deflation, which makes money holding costly and stimulates consumption.

Aggregate Demand Deficiency, Labor Unions, and Long-run Stagnation

Using a money-in-the-utility-function model, we present long-run stagnation where insatiable demand for money secularly causes deficient aggregate demand and thereby unemployment in the presence of nominal wage stickiness attributable to union wage setting. In this long-run stagnation, generous unemployment benefits reduce unemployment. Moreover, paradoxically, unemployment declines if labor unions give more weight to nominal wage gains compared with employment increases.

Effects of an Employment Subsidy in Long-Run Stagnation

We develop a money-in-the-utility-function model with two features. One is that a Phillips curve relationship between nominal wages and unemployment appears because of efficiency wages. The other is that as in the Japanese economy since the early 1990s, unemployment attributable to aggregate demand deficiency arises even in the long run. We analyze the effect of an employment subsidy in this long-run stagnation and show that an increase in the subsidy may worsen aggregate demand deficiency and unemployment.

The Effects of an Employment Subsidy in an Efficiency Wage Model with a Phillips Curve

Using a dynamic efficiency wage model where a Phillips curve relationship arises because worker morale depends on the unemployment rate and the change in nominal wages, we analyze both structural and Keynesian unemployment and the effects of an employment subsidy on the two types of unemployment. We show that the presence of an aggregate demand deficiency crucially influences the impact of the employment subsidy.

Structural Unemployment and Keynesian Unemployment in an Efficiency Wage Model with a Phillips Curve

Using a dynamic efficiency wage model, where a Phillips curve appears because worker morale depends on the unemployment rate and a change in nominal wages, we analyze the effects of fiscal and monetary expansions and of an employment subsidy on unemployment in two steady states. In one steady state, only structural unemployment occurs. In the other, not only structural unemployment but also Keynesian unemployment arises. We find that the effects obtained in the former steady state contrast strongly with those obtained in the latter.

Inflation, Fiscal Deficits, and Multiple Steady States in a Cash-in-Advance Model

Using a model where a cash-in-advance constraint is imposed on both consumption and investment and the central bank is compelled to finance a fiscal deficit through money creation, this paper shows that there are two or three steady states. If two steady states exist, a high-inflation trap can appear, and an economy will most probably converge to a high-inflation steady state. If three steady states exist, a poverty trap can occur, and an economy where the initial capital stock is less than a threshold level reaches a high-inflation and low-capital steady state.

Central Bank Independence, Fiscal Deficits, and the Poverty Trap

This paper shows that multiple steady states occur if a central bank is not independent and is compelled to finance a large fiscal deficit through seigniorage. If the initial capital stock is less than a certain threshold, the economy converges to a steady state where the capital stock is low and the inflation rate is high. Tight fiscal policies bring the economy out of the poverty trap. Moreover, if the central bank is independent, the poverty trap is removed independently of the fiscal position.

MONETARY EXPANSION AND PRODUCTIVE PUBLIC EXPENDITURE IN A CASH-IN-ADVANCE ECONOMY

Using a dynamic optimization model that incorporates a cash-in-advance constraint on both consumption and investment and productive public capital financed by a lump-sum tax and seigniorage, this paper analyses the steady-state effects of an increase in the inflation rate (the money growth rate) on output, private capital and welfare. The effects are negative at high inflation rates. However, at low inflation rates, the effects depend on the amount of lump-sum tax revenue collected and therefore are either positive or negative.