The Friedman Rule in a Model with Endogenous Growth and Cash‐in‐Advance Constraint

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. et al. (2007), exhibits a positive intergenerational externality which precludes its laissez-fair equilibrium to be optimal even if the government can control the level of physical capital and set it to satisfy the modified golden rule. The main message of the paper is that, as long as the modified golden rule is attained, Friedman rule is optimal. Terms of use: Documents inThe result holds regardless of the ability of the government to internalize the externality and control the level of human capital. Other results include: (i) violation of Friedman rule for a different second-best environment wherein human capital accumulation is controlled but not physical capital accumulation; (ii) existence of a negative relationship between money growth rate and the economy's endogenous growth rate, and (iii) non-uniqueness of Friedman rule.JEL Code: H21, H52.

R&D AND ECONOMIC GROWTH IN A CASH‐IN‐ADVANCE ECONOMY

“…Since then, a large number of studies has analyzed the optimality of Friedman rule in different economic environments; see, for example, Mulligan and Sala‐i‐Martin () for a discussion on some of the early studies and Bhattacharya et al. (), Gahvari (, ), and Lai and Chin () for recent contributions. Until recently, a close‐to‐zero nominal interest rate has been little more than a theoretical possibility, rarely occurring in reality.…”

“…We also analyze the long-run implications on social welfare and compare our results to Friedman's (1969) proposed monetary policy rule, according to which the optimal nominal interest rate should be zero. Since then, a large number of studies has analyzed the optimality of Friedman rule in different economic environments; see, for example, Mulligan and Salai-Martin (1997) for a discussion on some of the early studies and Bhattacharya et al (2005), Gahvari (2007Gahvari ( , 2012, and Lai and Chin (2010) for recent contributions. Until recently, a closeto-zero nominal interest rate has been little more than a theoretical possibility, rarely occurring in reality.…”

The Friedman rule in an overlapping-generations model with nonlinear taxation and income misreporting

“…23 Consequently, the mechanism designer must optimize with respect to c ; d and . Denote compensated (Hicksian) variables by a "tilde", so that, for instance, e x j denotes the j-type's compensated demand for x.…”

“…Other equations of interest are the steady-state versions of the young j-type's intertemporal budget constraint (10) and his conditional indirect utility function (23).…”

A Comment on Chicago Rule, Chicago School, and Commercial Bank Seigniorage

“…This is the reason, the Diamond (1965) that is "practice", why Gahvari (2007) arrives at a similar conclusion in Gahvari (2009). Second, (4) obtains from (2) by setting τ=α=0, which is mathematically meaningful, but setting τ=α=0 in (3), the fraction τ/(α-τ) becomes 0/0 and since θ=τ, (3) becomes 0=0/0, which is not sensible mathematically and which certainly cannot be connected with any policy rule.…”