The Role of Money in Two Alternative Models: When is the Friedman Rule Optimal, and Why?

Joydeep Bhattacharya (), Joseph Haslag () and Steven Russell

Staff General Research Papers from Iowa State University, Department of Economics

Abstract: In models of money with an infinitely-lived representative agent (ILRA models), the optimal monetary policy is almost always the Friedman rule. Overlapping generations (OG) models are different: in this paper, we study how they are different, and why. We investigate the welfare properties of monetary policy in a simple OG model under two different types of money demand specifications and under two alternative assumptions about the generational timing of taxes for money retirement. We find that the Friedman rule is generally not the policy that maximizes steady-state utility. We conclude that the key difference between ILRA and OG monetary models is that in the latter, the standard method for constructing a monetary regime causes transactions involving money to become intergenerational transfers. Overlapping generations are different in this regard; we study how they are different and why.

JEL-codes: E4 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-mon
Date: 2004-05-17
View list of references View citations in EconPapers

Published in Journal of Monetary Economics, 2005, Vol. 52, No. 8, pp. 1401-1433.

Downloads: (external link)
http://www.econ.iastate.edu/research/webpapers/paper_11950_04011.pdf (application/pdf)

Related works:
Journal Article: The role of money in two alternative models: When is the Friedman rule optimal, and why? (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:isu:genres:11950

Access Statistics for this paper

More papers in Staff General Research Papers from Iowa State University, Department of Economics
Address: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Contact information at EDIRC.
Series data maintained by Stephanie Bridges ().