The Tobin effect and the Friedman rule

Arbeitspapier

This paper studies an overlapping generations economy with capital where limited communication and stochastic relocation create an endogenous transactions role for fiat money. We assume a production function with a knowledge externality (Romer-style) that nests economies with endogenous growth (AK form) and those with no long-run growth (the Diamond model). We show that the Tobin effect is always operative. Under CRRA (constant relative risk aversion) preferences, a mild degree of social increasing returns is sufficient (but not necessary) for some positive inflation to dominate zero inflation and for the Friedman rule to be suboptimal, irrespective of the degree of risk aversion.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Staff Report ; No. 224

Classification and Topics

• Classification: Wirtschaft ; Price Level; Inflation; Deflation ; Money Supply; Credit; Money Multipliers ; Central Banks and Their Policies
• Subject: Friedman rule, Tobin effect, monetary policy ; Geldmengensteuerung ; Overlapping Generations ; Produktionsfunktion ; Neue Wachstumstheorie ; Theorie

Contributors, Places and Time

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

Further information

• Handle: http://hdl.handle.net/10419/60584
• Last update: 10.03.2025, 11:46 AM CET