Who is Afraid of the Friedman Rule?

Joe Haslag (), Joydeep Bhattacharya, Antoine Martin and Rajesh Singh
Additional contact information
Joe Haslag: Department of Economics, University of Missouri-Columbia, https://economics.missouri.edu/people/haslag

No 421, Working Papers from Department of Economics, University of Missouri

Abstract: In this paper, we explore the connection between optimal monetary policy and heterogeneity among agents. We study a standard monetary economy with two types of agents in which the stationary distribution of money holdings is non-degenerate. 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 social welfare either. Indeed, one or, more surprisingly, both types may benefit if the central bank deviates from the Friedman rule. Our results suggest a positive explanation for why central banks around the world do not implement the Friedman rule.

Keywords: Friedman rule; monetary policy; money-in-the-utility-function (search for similar items in EconPapers)
JEL-codes: E31 E51 E58 (search for similar items in EconPapers)
Pages: 29 pgs.
Date: 2004-12-21, Revised 2004-12-21
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://drive.google.com/file/d/1M2gLk1a8Iz8_HGNzT ... YQP/view?usp=sharing (application/pdf)

Related works:
Journal Article: WHO IS AFRAID OF THE FRIEDMAN RULE? (2008)
Working Paper: 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)
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:umc:wpaper:0421

Access Statistics for this paper

More papers in Working Papers from Department of Economics, University of Missouri Contact information at EDIRC.
Bibliographic data for series maintained by Chao Gu ().