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Optimal money growth in a limited participation model with heterogeneous agents

Erdem Basci and Ismail Saglam

Review of Economic Design, 2005, vol. 9, issue 2, 108 pages

Abstract: This paper studies optimal money growth in a cash-in-advance production economy with heterogeneity in patience levels and know-how. We show that the rate of deflation suggested by the Friedman rule is limited by the subjective discount rate of the most patient agent in the economy. The output distortion due to cash-in-advance constraints on firms can completely be eliminated by means of the Friedman rule if and only if firms are run by the most patient agents. Copyright Springer-Verlag Berlin/Heidelberg 2005

Keywords: Cash-in-advance; limited participation; inflation; Friedman rule (search for similar items in EconPapers)
Date: 2005
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Working Paper: Optimal Money Growth in A Limited Particpation Model with Heterogenous Agents (2000)
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DOI: 10.1007/s10058-005-0122-1

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