Who is afraid of the Friedman rule?

Joydeep Bhattacharya (), Joseph Haslag (), Antoine Martin () and Rajesh Singh ()

No 208, Staff Reports from Federal Reserve Bank of New York

Abstract: We explore the connection between optimal monetary policy and heterogeneity among agents. We utilize a standard monetary economy with two types of agents that differ in the marginal utility they derive from real money balances-a framework that produces a nondegenerate stationary distribution of money holdings. Without type-specific fiscal policy, we show that the zero-nominal-interest-rate policy (the Friedman rule) does not maximize type-specific welfare; further, it may not maximize aggregate ex ante social welfare. Indeed one or, more surprisingly, both types of agents may benefit if the central bank deviates from the Friedman rule.

Keywords: Monetary policy; Interest rates; Friedman, Milton; Banks and banking, Central (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
Date: 2005
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Related works:
Working Paper: Who is Afraid of the Friedman Rule? (2004)
Working Paper: Who is Afraid of the Friedman Rule? (2004)
Journal Article: WHO IS AFRAID OF THE FRIEDMAN RULE? (2008)
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