Who is afraid of the Friedman rule?

Arbeitspapier

We explore the connection between optimal monetary policy and heterogeneity among agents. We utilize a standard monetary economy with two types of agents that differ in the marginal utility they derive from real money balances — a framework that produces a nondegenerate stationary distribution of money holdings. Without type-specific fiscal policy, we show that the zero-nominal-interest-rate policy (the Friedman rule) does not maximize type-specific welfare; further, it may not maximize aggregate ex ante social welfare. Indeed one or, more surprisingly, both types of agents may benefit if the central bank deviates from the Friedman rule.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Staff Report ; No. 208

Classification and Topics

• Classification: Wirtschaft ; Price Level; Inflation; Deflation ; Money Supply; Credit; Money Multipliers ; Central Banks and Their Policies
• Subject: Geldpolitik ; Regelgebundene Politik ; Zinspolitik ; Geldmengensteuerung ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bhattacharya, Joydeep ; Haslag, Joseph ; Martin, Antoine ; Singh, Rajesh
• Event: Veröffentlichung
• (who): Federal Reserve Bank of New York
• (where): New York, NY
• (when): 2005

Further information

• Handle: http://hdl.handle.net/10419/60673
• Last update: 10.03.2025, 11:44 AM CET