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Some results on the optimality and implementation of the Friedman rule in the Search Theory of Money

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  • Lagos, Ricardo

Abstract

I characterize a large family of monetary policies that implement Milton Friedman's prescription of zero nominal interest rates in a monetary search economy with multiple assets and aggregate uncertainty. This family of optimal policies is defined by two properties: (i) the money supply must be arbitrarily close to zero for an infinite number of dates, and (ii) asymptotically, on average (over the dates when fiat money plays an essential role), the growth rate of the money supply must be at least as large as the rate of time preference.

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File URL: http://www.sciencedirect.com/science/article/B6WJ3-4Y52R6G-1/2/75429153cb1ea6b202b673986d477dc2
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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 145 (2010)
Issue (Month): 4 (July)
Pages: 1508-1524

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Handle: RePEc:eee:jetheo:v:145:y:2010:i:4:p:1508-1524

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Web page: http://www.elsevier.com/locate/inca/622869

Related research

Keywords: Friedman rule Interest rates Liquidity Monetary policy Search;

References

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  1. Lagos, Ricardo & Rocheteau, Guillaume, 2008. "Money and capital as competing media of exchange," Journal of Economic Theory, Elsevier, vol. 142(1), pages 247-258, September.
  2. Lagos, Ricardo, 2010. "Asset prices and liquidity in an exchange economy," Journal of Monetary Economics, Elsevier, vol. 57(8), pages 913-930, November.
  3. Edward J. Green & Ruilin Zhou, 2000. "Dynamic monetary equilibrium in a random-matching economy," Working Paper Series WP-00-1, Federal Reserve Bank of Chicago.
  4. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-45, November.
  5. Ricardo Lagos & Randall Wright, 2002. "A unified framework for monetary theory and policy analysis," Working Paper 0211, Federal Reserve Bank of Cleveland.
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Citations

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Cited by:
  1. Aleksander Berentsen & Alessandro Marchesiani & Christopher J. Waller, 2010. "Channel systems: Why is there a positive spread?," Working Papers 2010-049, Federal Reserve Bank of St. Louis.
  2. Moscarini, Giuseppe & Wright, Randall, 2010. "Introduction to Search Theory and Applications," Journal of Economic Theory, Elsevier, vol. 145(4), pages 1319-1324, July.
  3. Stephen D. Williamson & Randall Wright, 2010. "New Monetarist Economics: models," Staff Report 443, Federal Reserve Bank of Minneapolis.
  4. Aleksander Berentsen & Alessandro Marchesiani & Christopher J. Waller, 2013. "Floor systems for implementing monetary policy: Some unpleasant fiscal arithmetic," ECON - Working Papers 121, Department of Economics - University of Zurich, revised Sep 2013.
  5. Berentsen, Aleksander & Waller, Christopher, 2011. "Outside versus inside bonds: A Modigliani–Miller type result for liquidity constrained economies," Journal of Economic Theory, Elsevier, vol. 146(5), pages 1852-1887, September.
  6. Aleksander Berentsen & Christopher Waller, 2010. "Outside versus Inside Bonds: A Modigliani-Miller Type Result for Liquidity Constrained Economies," CESifo Working Paper Series 3272, CESifo Group Munich.
  7. Jacquet, Nicolas L. & Tan, Serene, 2012. "Money and asset prices with uninsurable risks," Journal of Monetary Economics, Elsevier, vol. 59(8), pages 784-797.
  8. Ricardo Lagos, 2005. "Asset Prices and Liquidity in an Exchange Economy," 2005 Meeting Papers 143, Society for Economic Dynamics.
  9. Ricardo Lagos, 2008. "The Research Agenda: Ricardo Lagos on Liquidity and the Search Theory of Money," EconomicDynamics Newsletter, Review of Economic Dynamics, vol. 10(1), November.

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