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This paper examines the distribution of output around capacity when money demand is a nonlinear function of the nominal interest rate such that nominal interest rates cannot become negative. When fluctuations in output result primarily from disturbances to the money market, the variance of output is shown to be an increasing function of the trend inflation rate. When they result from disturbances to the goods market, the variance of output is a decreasing function of the trend inflation rate. When both disturbances are significant, there exists, in general, a critical non-zero trend inflation rate that minimizes the variance of output.

Banks and Banking --- Inflation --- Money and Monetary Policy --- Production and Operations Management --- Price Level --- Deflation --- Demand for Money --- Interest Rates: Determination, Term Structure, and Effects --- Macroeconomics: Production --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Macroeconomics --- Monetary economics --- Finance --- Demand for money --- Capacity utilization --- Monetary base --- Real interest rates --- Prices --- Money --- Production --- Financial services --- Industrial capacity --- Money supply --- Interest rates --- United States

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Zonder onderwerpscode: economie

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Human capital --- -Technological innovations --- -Economic development --- -Mathematical models --- Mathematical models

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Much recent work has suggested that endogenous technological change tends to reinforce the position of the leading nations. Yet from time to time this leadership role shifts. We suggest a mechanism that explains this pattern of -leapfrogging- as a response to occasional major changes in technology. When such a change occurs, leading nations may have no incentive to adopt the new ideas; given their extensive experience with older technologies, the new ideas do not initially seem to be an improvement. Lagging nations, however, have less experience; the new techniques offer them an opportunity to use their lower wages, to break into the market. If the new techniques eventually prove to be more productive than the old, there is a reversal of leadership.

Economic development --- Mathematical models.