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The Optimal Inflation Tax

Author

Listed:
  • Isabel Correia

    (Banco de Portugal and Universidad Catolica Portuguesa)

  • Pedro Teles

    (Banco de Portugal and Universidad Catolica Portuguesa)

Abstract

We determine the second best rule for the inflation tax in monetary general equilibrium models where money is dominated in rate of return. The results in the literature are ambiguous and inconsistent across different monetary environments. We derive and compare the optimal inflation tax solutions across the different environments and find that Friedman's policy recommendation of a zero nominal interest rate is the right one. (Copyright: Elsevier)

Suggested Citation

  • Isabel Correia & Pedro Teles, 1999. "The Optimal Inflation Tax," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(2), pages 325-346, April.
    • Handle: RePEc:red:issued:v:2:y:1999:i:2:p:325-346
    DOI: 10.1006/redy.1998.0040
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    More about this item

    Keywords

    Friedman rule; inflation tax;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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