Money growth, dynamic efficiency and asset bubbles in a perpetual youth model

- We consider a perpetual youth model in which real balances provide utility.
- Dynamic efficiency is consistent with a positive inflation rate.
- The higher inflation, the larger is the bubble required to restore efficiency.

We consider a perpetual youth model in which real balances are an argument of the utility function. We show that dynamic efficiency is compatible with a positive inflation rate, and that the higher inflation, the larger is the size of the bubble required to remove the inefficiency.