The Optimal Quantity of Money Consistent with Positive Nominal Interest Rates

Taiji Harashima

MPRA Paper from University Library of Munich, Germany

Abstract: The Friedman rule is strongly immune to most model modifications although it has not actually been observed. The Friedman rule implicitly assumes that a government is perfectly under the control of the representative household. This paper shows that, if a government is not perfectly under the control of the representative household, but also pursues political objectives, the optimal quantity of money generally is accompanied by positive nominal interest and inflation rates through the simultaneous optimization of government and the representative household. The fact that nominal interest and inflation rates are usually positive conversely implies that a government usually pursues political objectives.

Keywords: The Optimal Quantity of Money; The Friedman rule; Inflation; The fiscal theory of the price level; Leviathan (search for similar items in EconPapers)
JEL-codes: E41 E42 E51 E63 (search for similar items in EconPapers)
Date: 2007-01-16, Revised 2007-02-19
New Economics Papers: this item is included in nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:1839

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