Money, social status, and capital accumulation in a cash-in-advance model

Using Gong and Zou's (2001) model, we reexamine the steady-state effect of monetary growth on the capital stock in the presence of a wealth-induced social status. We find that inflation negatively affects the long-run capital stock if all investment and consumption goods are liquidity constrained. Moreover, if all consumption goods and a fraction of investment goods are liquidity constrained, inflation has an uncertain effect on the long-run capital stock, depending on the extent of the desire for a wealth-induced social status. These results stand in contrast to those of Gong and Zoo (2001).