Anticipation of future consumption: a monetary perspective
AbstractWe adapt the (Sidrauski, 1967) monetary model to study the hypothesis of anticipation of future consumption. We assume that anticipation of future consumption affects an agent's instantaneous utility and that all effects of future consumption on current wellbeing are captured by the stock of future consumption. Monetary policy effectiveness is thereby reduced and a zero nominal lower interest rate (and thus the Friedman Rule) is destabilizing. Given this, we can derive a "just stable" equilibrium nominal interest rate with matching definitions for inflation and monetary growth. We demonstrate that these implied lower bounds match their historical analogues well. JEL Classification: E41, D91, O42
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Bibliographic InfoPaper provided by European Central Bank in its series Working Paper Series with number 1448.
Date of creation: Jul 2012
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Other versions of this item:
- João Ricardo Faria & Peter Mcadam, 2013. "Anticipation of Future Consumption: A Monetary Perspective," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(2-3), pages 423-447, 03.
- E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- O42 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models
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