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Friedman Rule in a Model with Endogenous Growth and Cash-in-advance Constraint

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Author Info
Firouz Gahvari ()

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Abstract

This paper introduces money into an overlapping generations model with endogenous growth. The model, due to Docquier et al. (2007), exhibits a positive intergenerational externality which precludes its laissez-fair equilibrium to be optimal even if the government can control the level of physical capital and set it to satisfy the modified golden rule. The main message of the paper is that, as long as the modified golden rule is attained, Friedman rule is optimal. The result holds regardless of the ability of the government to internalize the externality and control the level of human capital. Other results include: (i) violation of Friedman rule for a different second-best environment wherein human capital accumulation is controlled but not physical capital accumulation; (ii) existence of a negative relationship between money growth rate and the economy’s endogenous growth rate, and (iii) non-uniqueness of Friedman rule.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 2708.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2708

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Related research
Keywords: Friedman rule; endogenous growth; investment in human capital; overlapping generations; second best;

Find related papers by JEL classification:
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education

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  12. Kirsten Wandschneider & Nikolaus Wolf, 2009. "Shooting on a Moving Target: Eyplaining European Bank Rates during the Interwar Period," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  16. Dominique Demougin & Oliver Fabel & Christian Thomann, 2009. "Implicit vs. Explicit Incentives: Theory and a Case Study," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  21. Razin, Assaf & Sand, Edith, 2009. "Migration-Regime Liberalization and Social Security: Political-Economy Effect," CEPR Discussion Papers 7310, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  22. Subhasish M. Chowdhury & Dan Kovenock J. & Roman M. Sheremeta, 2009. "An Experimental Investigation of Colonel Blotto Games," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  23. Michael Funke & Marc Gronwald, 2009. "A Convex Hull Approach to Counterfactual Analysis of Trade Openness and Growth," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  25. Thomas Hemmelgarn & Gaetan Nicodeme, 2009. "Tax Co-ordination in Europe: Assessing the First Years of the EU-Savings Taxation Directive," Taxation Papers 18, Directorate General Taxation and Customs Union, European Commission. [Downloadable!]
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  26. Francesco Menoncin & Paolo Panteghini, 2009. "Retrospective Capital Gains Taxation in the Real World," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  27. Guglielmo Maria Caporale & Luis A. Gil-Alana, 2009. "Long Memory in US Real Output per Capita," Discussion Papers of DIW Berlin 891, DIW Berlin, German Institute for Economic Research. [Downloadable!]
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  29. Guglielmo Maria Caporale & Luis A. Gil-Alana, 2009. "Multi-Factor Gegenbauer Processes and European Inflation Rates," Discussion Papers of DIW Berlin 879, DIW Berlin, German Institute for Economic Research. [Downloadable!]
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  32. Ali Bayar & Bram Smeets, 2009. "Government Deficits in the European Union: An Analysis of Entry and Exit Dynamics," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  33. Oliver Himmler, 2009. "The Effects of School Competition on Academic Achievement and Grading Standards," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  34. Francesco C. Billari & Vincenzo Galasso, 2009. "What Explains Fertility? Evidence from Italian Pension Reforms," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  36. Dominique Demougin & Carsten Helm, 2009. "Incentive Contracts and Efficient Unemployment Benefits," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  37. Aleksandra Riedl & Silvia Rocha-Akis, 2009. "Testing the Tax Competition Theory: How Elastic are National Tax Bases in OECD Countries?," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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