Friedman meets Becker and Mulligan in a monetary neoclassical growth model

Chen, Been-Lon; Hsu, Yu-Shan; Lu, Chun-Shien

doi:10.1007/s00712-011-0224-x

Cited by 2 publications

(1 citation statement)

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“…This result is opposite to what is obtained under increasing marginal impatience. Chen, Hsu and Lu (2011), on the other hand, examined, in the presence of a cash-in-advance constraint, the effect of higher monetary growth rates on capital, consumption and welfare in the long-run, and reported that Friedman's money supply rule does not apply, and confirmed the existence of a mild positive optimal inflation rate.…”

Section: Discussionmentioning

confidence: 99%

Transaction Services, Neutrality of Money, and Marginal Impatience

Hayakawa

2019

MJES

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This paper examines the issues of neutrality and optimum quantity of money in the context in which transaction services of money are imputed and enter a utility functional of a recursive class. We show that the results are diametrically different from the case of money in the utility function. The reason is due to the fact that in response to changes in nominal interest rates, agents adjust their real balance holdings hyperbolically to keep the marginal rate of substitution between real balances and consumption unitary. As of steady state, we show that capital intensity, consumption, transaction services, the rate of time preference, and agent's welfare are all invariant to monetary expansion, which is termed hyperneutrality. This strong neutrality holds whether the marginal impatience is increasing or decreasing in consumption and real balances. Friedman's argument for the optimum quantity of money and the optimum money supply rule is, therefore, no longer applicable. To distinguish transactions services from money accords with Walras's crucial distinction between money as a stock and its services of availability as a flow.

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Section: Discussionmentioning

confidence: 99%