The Optimality of the Friedman Rule When Some Distorting Taxes Are Exogenous

Alexandre Cunha

No 2005-06, IBMEC RJ Economics Discussion Papers from Economics Research Group, IBMEC Business School - Rio de Janeiro

Abstract: The Friedman rule is a feature of second-best policies in several monetary models. We extend this result by establishing that zero nominal interest rates can be optimal even if the Ramsey planner is not able to select many distorting tax rates. However, we show that the optimality of that policy prescription does depend on the set of tax rates the planner is able to choose. We also provide an intuitive way of assessing whether the Friedman rule is optimal for each particular set of tax rates the Ramsey planner is allowed to select.

Keywords: Friedman rule; optimal monetary policy; exogenous taxes (search for similar items in EconPapers)
JEL-codes: E31 E52 E63 H21 (search for similar items in EconPapers)
Date: 2005-11-30
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Related works:
Journal Article: The optimality of the Friedman rule when some distorting taxes are exogenous (2008)
Working Paper: THE OPTIMALITY OF THE FRIEDMAN RULE WHEN SOME DISTORTING TAXES ARE EXOGENOUS (2006)
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