EconPapers    
Economics at your fingertips  
 

Incentives and the Limits to Deflationary Policy

David Andolfatto ()

MPRA Paper from University Library of Munich, Germany

Abstract: I study a version of the Lagos-Wright (2005) model for which the Friedman rule is always a desirable policy, but where implementation may be constrained by the need to respect incentive-feasibility. In the environment I consider, incentives are distorted owing to private information and limited commitment. I demonstrate that a monetary economy can overcome the former friction, but not necessarily the latter. When this is so, there is an incentive-induced lower bound to the rate of deflation away from the Friedman rule. There are also circumstances in which the best incentive-feasible monetary policy may entail a strictly positive rate of inflation. This will be the case, for example, if agents are sufficiently impatient or if there are rapidly diminishing returns to production.

Keywords: Money; Memory; Incentives; Friedman Rule (search for similar items in EconPapers)
JEL-codes: E0 E50 (search for similar items in EconPapers)
Date: 2007-09-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/4681/1/MPRA_paper_4681.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/4688/1/MPRA_paper_4688.pdf revised version (application/pdf)

Related works:
Working Paper: Incentives and the Limits to Deflationary Policy (2007) Downloads
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: https://EconPapers.repec.org/RePEc:pra:mprapa:4681

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().

 
Page updated 2025-03-19
Handle: RePEc:pra:mprapa:4681