Arbeitspapier

Friedman rule in a model with endogenous growth and cash-in-advance constraint

This paper introduces money into an overlapping generations model with endogenous growth. The model, due to Docquier 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. The 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.

Language
Englisch

Bibliographic citation
Series: CESifo Working Paper ; No. 2708

Classification
Wirtschaft
Taxation and Subsidies: Efficiency; Optimal Taxation
National Government Expenditures and Education
Subject
Friedman rule
endogenous growth
investment in human capital
overlapping generations
second best
Geldmengensteuerung
Overlapping Generations
Neue Wachstumstheorie
Cash-in-Advance-Modell
Bildungsinvestition
Second Best
Theorie

Event
Geistige Schöpfung
(who)
Gahvari, Firouz
Event
Veröffentlichung
(who)
Center for Economic Studies and ifo Institute (CESifo)
(where)
Munich
(when)
2009

Handle
Last update
10.03.2025, 11:42 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Gahvari, Firouz
  • Center for Economic Studies and ifo Institute (CESifo)

Time of origin

  • 2009

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