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The Optimum Quantity of Money Revisited: Distortionary Taxation in a Search Model of Money

Moritz Ritter ()

No 1005, DETU Working Papers from Department of Economics, Temple University

Abstract: This paper incorporates a distortionary tax into a microfoundations of money framework and revisits the optimum quantity of money. The money constraint in the decentralized market plays a key role in the optimal policy. Only if the constraint is binding can fiscal policy alter the agents' surplus shares; monetary, but not fiscal, policy affects the agents' bargaining position, leaving a special role for monetary policy. If the buyers surplus share is inefficiently small, the intensive margin is distorted and the constrained optimal policy includes a money growth rate above that prescribed by the Friedman rule, even in the presence of fiscal policy instruments.

Keywords: Money; Search; Friedman Rule; Sales Tax (search for similar items in EconPapers)
JEL-codes: E62 E63 H21 (search for similar items in EconPapers)
Date: 2010-03
New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
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http://www.cla.temple.edu/RePEc/documents/detu_10_05.pdf First version, 2010 (application/pdf)

Related works:
Journal Article: The Optimum Quantity of Money Revisited: Distortionary Taxation in a Search Model of Money (2010) Downloads
Working Paper: The Optimum Quantity of Money Revisited: Distortionary Taxation in a Search Model of Money (2007) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:tem:wpaper:1005

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