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Optimal money growth in a limited participation model with heterogeneous agents

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  • Erdem Başçí

    ()

  • Ismail Saglam

    ()

Abstract

This paper studies optimal money growth in a cash-in-advance production economy with heterogeneity in patience levels and know-how. We show that the rate of deflation suggested by the Friedman rule is limited by the subjective discount rate of the most patient agent in the economy. The output distortion due to cash-in-advance constraints on firms can completely be eliminated by means of the Friedman rule if and only if firms are run by the most patient agents. Copyright Springer-Verlag Berlin/Heidelberg 2005

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File URL: http://hdl.handle.net/10.1007/s10058-005-0122-1
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Bibliographic Info

Article provided by Springer in its journal Review of Economic Design.

Volume (Year): 9 (2005)
Issue (Month): 2 (04)
Pages: 91-108

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Handle: RePEc:spr:reecde:v:9:y:2005:i:2:p:91-108

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Related research

Keywords: Cash-in-advance; limited participation; inflation; Friedman rule;

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Cited by:
  1. Cengiz, Gulfer & Cicek, Deniz & Kuzubas, Tolga Umut & Olcay, Nadide Banu & Saglam, Ismail, 2007. "A Monetary Union Model with Cash-in-Advance Constraints," MPRA Paper 4248, University Library of Munich, Germany.
  2. Basci, Erdem & Erdogan, Ayse M. & Saglam, Ismail, 2006. "Money, Tobin Effect, and Incerasing Returns," MPRA Paper 1904, University Library of Munich, Germany.
  3. Erdem Başçi & Syed F. Mahmud & Eray M. Yucel, 2007. "Money and Productive Efficiency: Evidence from a High-Inflation Country," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 43(1), pages 64-73, February.

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