Social status, human capital formation and super-neutrality in a two-sector monetary economy

In this paper, we study how social status affects the impact of monetary policy on the long-run growth rate in a two-sector monetary economy with human capital accumulation, and find that the super-neutrality of money, with regard to the growth rate of the economy depends on the formation of human capital. In an economy with Lucas-type human capital formation, money is super-neutral; however, for an economy in which both physical and human capital are used as inputs for human capital accumulation, the money growth rate will have a positive effect on the long-run economic growth rate. The existence, uniqueness and saddle-path stability of balanced-growth equilibrium are also examined.

Research Highlights► The super-neutrality of money, with regard to the growth rate of the economy depends on the formation of human capital. ► Money is super-neutral in the sense of growth rate in a cash-in-advance monetary economy with Lucas-type human capital formation. ► If human capital formation depends on both physical and human capital, the money growth rate will positively affect the economic growth rate.