Investment adjustment costs and growth dynamics

We develop a monetary endogenous growth overlapping generations model characterized by investment adjustment costs as a negative function of productive government expenditures, and an inflation-targeting central bank. We show that growth dynamics arise, otherwise not possible in a standard monetary endogenous growth model with a money growth-rule and an exogenous adjustment cost parameter. Furthermore, hinging crucially on the strength of the response of the adjustment cost to productive public spending, single or multiple equilibria emerge, with the high-growth (low-growth) equilibrium in the latter case being stable (unstable), but locally indeterminate (locally determinate). • Monetary endogenous growth OLG model with inflation-targeting. • Investment adjustment costs as a negative function of government expenditures. • Growth dynamics arise. • Single or multiple equilibria emerge. • Depends on of the response strength of the adjustment cost to public spending.