An overlapping generations model for monetary policy analysis

Samuel Huber () and Jaehong Kim

No 272, ECON - Working Papers from Department of Economics - University of Zurich

Abstract: We integrate an overlapping generations model into a new monetarist framework and show that the Friedman rule is not optimal. This is because inflation makes saving for retirement less attractive, such that young agents optimally choose to increase their consumption at the expense of lower savings. On the other hand, old agents consume less due to the inflation tax. We show that for low inflation rates, the former effect dominates the latter, such that the Friedman rule is not optimal. However, this effect disappears for higher inflation rates such that the optimal rate is at an intermediate level.

Keywords: Overlapping generations; monetary theory; Friedman rule (search for similar items in EconPapers)
JEL-codes: D90 E31 E41 E50 (search for similar items in EconPapers)
Date: 2017-12
New Economics Papers: this item is included in nep-age, nep-cba, nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: An overlapping generations model for monetary policy analysis (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:zur:econwp:272

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