Limited participation models explain a short-run liquidity effect as arising from the redistribution of income from non-participants in the bond market to participants in the bond market. However, these models also imply that the liquidity effect is smaller the larger is long-run money growth....

This paper examines the growth-effects of inflation at alternative stages of financial development. We propose an endogenous growth model where intermediated savings generate capital. Informational problems cause banks to ration credit and hold liquid assets offering (real) returns that vary...