Money and growth through innovation cycles with leisure

•Study monetary policy in a cash-in-advance model of growth through cycles with leisure.•Higher money growth for lower income taxes increases labor, output, and growth immediately.•It increases investment and average growth in output and variety on the period-two-cycle path.•It amplifies fluctuations in investment, innovation, and output on the period-two-cycle path.•Once high enough, it induces convergence on balanced growth with continuing innovations.

We study monetary policy with growth through innovation cycles and leisure. If consumption is cash constrained, increasing money growth for lower income taxes increases labor, output, investment, innovation, and growth and amplifies fluctuations on a period-two-cycle path. It induces convergence to the balanced-growth path at sufficiently high money growth rates. If investment for innovation and intermediate production is also cash constrained, the effects of money on labor, investment, innovation, and growth become negative at sufficiently high money growth rates.