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Implementing the Friedman Rule

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  • Peter Ireland

    (Boston College)

Abstract

In cash-in-advence models, ncessary and sufficient conditions for the existence of an equilibrium with zero nominal interest rates and Pareto optimal allocations place restrictions only on the very long-run, or asymptotic, behavior of the money supply. When these asymptotic conditions are satisfied, they leave the central bank with a great deal of flexibility to manage the money supply over any finite horizon. But what happens when these asymptotic conditions fail to hold? This paper shows that the central bank can still implement the Friedman rule if its actions are appropriately constrained in the short run. (Copyright: Elsevier)

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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 6 (2003)
Issue (Month): 1 (January)
Pages: 120-134

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Handle: RePEc:red:issued:v:6:y:2003:i:1:p:120-134

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Related research

Keywords: Friedman rule; cash-in-advance model;

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References

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  1. Lucas, Robert E, Jr & Stokey, Nancy L, 1987. "Money and Interest in a Cash-in-Advance Economy," Econometrica, Econometric Society, Econometric Society, vol. 55(3), pages 491-513, May.
  2. Jehiel, Philippe, 1998. "Repeated games and limited forecasting," European Economic Review, Elsevier, Elsevier, vol. 42(3-5), pages 543-551, May.
  3. Lucas, Robert E, Jr, 1980. "Equilibrium in a Pure Currency Economy," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 18(2), pages 203-20, April.
  4. Woodford, Michael, 1994. "Monetary Policy and Price Level Determinacy in a Cash-in-Advance Economy," Economic Theory, Springer, Springer, vol. 4(3), pages 345-80.
  5. Harold L. Cole & Narayana R. Kocherlakota, 1998. "Zero nominal interest rates: why they're good and how to get them," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Spr, pages 2-10.
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Citations

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Cited by:
  1. Willem H. Buiter & Anne C. Sibert, 2007. "Deflationary bubbles," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 3323, London School of Economics and Political Science, LSE Library.
  2. Ching-chong Lai & Chi-ting Chin, 2010. "(In)determinacy, increasing returns, and the optimality of the Friedman rule in an endogenously growing open economy," Economic Theory, Springer, Springer, vol. 44(1), pages 69-100, July.
  3. Dastjerdi, Rasul Bakhshi & Isfahani, Rahim Dalali, 2011. "Equity and economic growth, a theoretical and empirical study: MENA zone," Economic Modelling, Elsevier, Elsevier, vol. 28(1-2), pages 694-700, January.
  4. Peter N. Ireland, 2005. "The Liquidity Trap, The Real Balance Effect, And The Friedman Rule ," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(4), pages 1271-1301, November.
  5. Dixon, Huw David & Pourpourides, Panayiotis M., 2012. "On Imperfect Competition with Occasionally Binding Cash-in-Advance Constraints," Cardiff Economics Working Papers, Cardiff University, Cardiff Business School, Economics Section E2012/3, Cardiff University, Cardiff Business School, Economics Section.
  6. Alexandre B. Cunha, 2006. "The Optimality Of The Friedman Rule When Some Distorting Taxes Are Exogenous," Anais do XXXIV Encontro Nacional de Economia [Proceedings of the 34th Brazilian Economics Meeting], ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of G 45, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  7. Peter N. Ireland, 2001. "The Real Balance Effect," NBER Working Papers 8136, National Bureau of Economic Research, Inc.
  8. Peter Ireland, 2005. "EconomicDynamics Interviews Peter Ireland on Money and the Business Cycle," EconomicDynamics Newsletter, Review of Economic Dynamics, Review of Economic Dynamics, vol. 7(1), November.
  9. Alexandre Cunha, 2004. "The Friedman Rule in a Two Sector Small Open Economy," Econometric Society 2004 North American Summer Meetings, Econometric Society 530, Econometric Society.

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