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Implementing the Friedman rule

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Author Info
Peter N. Ireland

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Abstract

In cash-in-advance models, necessary and sufficient conditions for the existence of an equilibrium with zero nominal interest rates and Pareto-optimal allocations restrict only 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.

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Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 0012.

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Length: 1-17
Date of creation: 2000
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Handle: RePEc:fip:fedcwp:0012

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Keywords: Monetary policy;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Jehiel, Philippe, 1998. "Repeated games and limited forecasting," European Economic Review, Elsevier, vol. 42(3-5), pages 543-551, May. [Downloadable!] (restricted)
  2. 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, issue Spr, pages 2-10. [Downloadable!]
  3. Woodford, Michael, 1994. "Monetary Policy and Price Level Determinacy in a Cash-in-Advance Economy," Economic Theory, Springer, vol. 4(3), pages 345-80.
  4. Lucas, Robert E, Jr & Stokey, Nancy L, 1987. "Money and Interest in a Cash-in-Advance Economy," Econometrica, Econometric Society, vol. 55(3), pages 491-513, May. [Downloadable!] (restricted)
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  5. Lucas, Robert E, Jr, 1980. "Equilibrium in a Pure Currency Economy," Economic Inquiry, Oxford University Press, vol. 18(2), pages 203-20, April.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Alexandre B. Cunha, 2005. "The Optimality of the Friedman Rule When Some Distorting Taxes Are Exogenous," IBMEC RJ Economics Discussion Papers 2005-06, Economics Research Group, IBMEC Business School - Rio de Janeiro. [Downloadable!]
    Other versions:
  2. Peter N. Ireland, 2001. "The Real Balance Effect," NBER Working Papers 8136, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Alexandre Cunha, 2004. "The Friedman Rule in a Two Sector Small Open Economy," Econometric Society 2004 North American Summer Meetings 530, Econometric Society. [Downloadable!]
  4. Peter Ireland, 2005. "The liquidity trap, the real balance effect, and the Friedman rule," Working Papers 05-3, Federal Reserve Bank of Boston. [Downloadable!]
    Other versions:
  5. Peter Ireland, 2005. "EconomicDynamics Interviews Peter Ireland on Money and the Business Cycle," EconomicDynamics Newsletter, Review of Economic Dynamics, vol. 7(1), November. [Downloadable!]
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This page was last updated on 2009-11-12.

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