Who is Afraid of the Friedman Rule

Joydeep Bhattacharya, Joseph Haslag, Antoine Martin and Rajesh Singh

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

Abstract: We explore the connection between optimal monetary policy and heterogeneity among agents in a standard monetary economy with two types of agents where the stationary distribution of money holdings is nondegenerate. Sans type-specific fiscal policy, we show that the zero-nominal-interest rate policy (the Friedman rule) does not maximize type-specific welfare; it may not maximize aggregate ex ante social welfare either. Indeed, one or, more surprisingly, both types may benefit if the central bank deviates from the Friedman rule.

Date: 2008-04-01
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: WHO IS AFRAID OF THE FRIEDMAN RULE? (2008)
Working Paper: Who is afraid of the Friedman rule? (2005)
Working Paper: Who is Afraid of the Friedman Rule? (2004)
Working Paper: Who is Afraid of the Friedman Rule? (2004)
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