This paper mainly shows that the indeterminacy of endogenous growth may exist even though the intertemporal elasticity of substitution in consumption is smaller than unity when inflation uncertainty allowed. Besides, we can derive a close-form solution to demonstrate that the relationship between inflation uncertainty and economic growth may display positive or negative relationship whether intertemporal elasticity of substitution in consumption is smaller than unity. The intuition behind this paper comes from the fact that substitution and income effect work together to affect capital evolution when facing risk.
Through the analyses in this paper, it was noticed that, although quantitative easing monetary policy can contribute to economic growth, it would also cause the economic system to be at a higher level of real balance to capital. Therefore, the risk-bearing capacity of citizens would reduce, and would cause future decline in economic growth if risks escalate.
2016 International Conference on Business and Information