Inflation and welfare in an endogenously growing econom

This thesis develops a monetary endogenous growth model where money is no longer superneutral. Economic growth is propelled by the accumulation of human capital and money enters into the optimization problem of the individual through a shopping-time technology. A higher rate of inflation induces the agent to increase the allocation of time devoted to transaction activities, reducing the time available to more productive activities and hence, affecting the growth rate of the economy and the welfare of the individual.;I found that the negative effects of inflation on the growth rate of real variables are small even for high rates of monetary expansion. However, the welfare effects on the individual are significant at these levels and no negligible at low rates of inflation. Also, I found that, when taking into account transitional effects, a monetary policy aimed at reducing the level of inflation is even more attractive for the individuals.;In the model economy, an optimal monetary and fiscal policy implies that any exogenous level of public expenditure has to be finance by raising revenue with an income tax. It also involves a Friedman's rule where nominal interest rates are driven to zero such that the agents hold the satiation level of real money balances and transaction costs in the economy are reduced to zero.