Document Type

Dissertation

Date of Award

1974

Keywords

Inflation (Finance), Mathematical models, Saving and investment, Mathematical models

Degree Name

Doctor of Philosophy (PhD)

Department

Mathematical Sciences

First Advisor

William H. Waldorf

Second Advisor

Stanley H. Cohn

Third Advisor

Thomas G. Cowing

Abstract

This paper attempts to answer two questions. First, is a policy of inflationary capital formation (ICF) capable of permanently raising the growth path of real output? When all the dynamic propagations of the initial impact of ICF spendings are accounted for and it is shown that the resulting public capital formation is simply a substitute for otherwise available private capital formation, then the policy of ICF would have failed the first test. Second, if ICF spendings do accelerate output growth, what rate of ICF would be most conducive to a rapid relieving of factor imbalance and the sustained promotion of economic growth?

The reason for adding one more paper to the already extensive literature in the field is the relative scarcity of concrete quantitative analysis of the issue. Those few studies that provide quantitative results tend to be illustrative in their style in that they present rather sketchy descriptions of the costs and benefits of ICF.

The goal of this study then is to employ a more comprehensive approach, so that the ICF's dynamic propagation process can be scrutinized in a broader framework, taking into account the many significant causal linkages bearing on a final verdict concerning the thesis of forced saving.

Some of the equations that are not at the heart of the model are somewhat weak but these equations are included for the sake of "closing" the model. Hopefully, the model adopted in this study produces information which sheds some light upon and modifies the rather pessimistic conclusion of Mundell that is at variance with the Brazilian experience of ICF. The proposed model is tested with South Korean data covering the period of 1963 - 1970.

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