Campus Units

Economics

Document Type

Article

Publication Version

Published Version

Publication Date

4-2008

Journal or Book Title

Economic Inquiry

Volume

46

Issue

2

First Page or Article ID Number

113

Last Page

130

DOI

10.1111/j.1465-7295.2007.00068.x

Abstract

We explore the connection between optimal monetary policy and heterogeneity among agents in a standard monetary economy with two types of agents where the stationary distribution of money holdings is nondegenerate. 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 ex ante social welfare either. Indeed, one or, more surprisingly, both types may benefit if the central bank deviates from the Friedman rule.

JEL Classification

E31, E51, E58

Comments

This article is published as Bhattacharya, Joydeep, Joseph Haslag, Antoine Martin, and Rajesh Singh. "Who is afraid of the Friedman rule?." Economic Inquiry 46, no. 2 (2008): 113-130.

Rights

Works produced by employees of the U.S. Government as part of their official duties are not copyrighted within the U.S. The content of this document is not copyrighted.

Language

en

File Format

application/pdf

Working Paper

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