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Optimal money supply in models with endogenous discount factor

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  • Aoki, Yoshimasa
  • Tomoda, Yasunobu
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    Abstract

    This paper studies the Friedman rule for the optimal quantity of money in money in the utility (MIU) and cash-credit models while considering two specifications for the endogenous discount factor. In the first specification, the discount factor depends directly on the utility level. In the second, the discount factor depends on every component of the utility function. We show that under the former specification the Friedman rule is the optimal policy. Under the latter, however, while the Friedman rule is optimal for the MIU model, it is not optimal for the cash-credit model.

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    Bibliographic Info

    Article provided by Elsevier in its journal The Quarterly Review of Economics and Finance.

    Volume (Year): 49 (2009)
    Issue (Month): 3 (August)
    Pages: 798-810

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    Handle: RePEc:eee:quaeco:v:49:y:2009:i:3:p:798-810

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    Web page: http://www.elsevier.com/locate/inca/620167

    Related research

    Keywords: Friedman's rule Endogenous discount factors Optimal quantity of money rule;

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    11. Mohsin, Mohammed, 2004. "Exchange rate policies and endogenous time preference: a dynamic analysis of a small open economy," Economics Letters, Elsevier, vol. 82(2), pages 195-203, February.
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