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Optimal Monetary Growth

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Andrew B. Abel

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Abstract

In the absence of monetary superneutrality, inflation affects capital accumulation and the demand for real balances. This paper derives the combination of monetary end lump-sum fiscal policy which maximizes the sum of discounted utilities of representative consumers in present and future generations. Under the optimal policy package, the steady state has a zero nominal interest race and has monetary contraction at the rate of intergenerational discount. As the rate of intergenerational discount rate approaches zero, optimal policy maximizes steady state utility of the representative consumer. In this case, the optimal steady state is characterized by a constant nominal money supply.

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Paper provided by Wharton School Rodney L. White Center for Financial Research in its series Rodney L. White Center for Financial Research Working Papers with number 2-87.

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Handle: RePEc:fth:pennfi:2-87

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  1. Akira Yakita, 2006. "Life expectancy, money, and growth," Journal of Population Economics, Springer, vol. 19(3), pages 579-592, July. [Downloadable!] (restricted)
  2. 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:
  3. Jean-Pascal Bénassy, 2005. "Interest rate rules, inflation and the Taylor principle: An analytical exploration," PSE Working Papers 2005-46, PSE (Ecole normale supérieure). [Downloadable!]
    Other versions:
  4. Andrew B. Abel, 1986. "Dynamic Behavior of Capital Accumulation in a Cash-in-Advance Model," NBER Working Papers 1549, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Chang, Roberto, 1989. "Monopolistic Competition, Overlapping Generations, And The Role Of Monetary Policy," Working Papers 89-16, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
  6. Jean-Pascal Benassy, 2003. "Fiscal Policy and Optimal Monetary Rules in a non Ricardian Economy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(3), pages 498-512, July. [Downloadable!] (restricted)
  7. Xavier Ragot, 2005. "A theory of low inflation in a non Ricardian economy with credit Constraints," PSE Working Papers 2005-20, PSE (Ecole normale supérieure). [Downloadable!]
  8. Zhu, Tao, 2007. "An Overlapping-Generations Model with Search," Working Papers 07-09, Cornell University, Center for Analytic Economics. [Downloadable!]
  9. Chang, Roberto, 1991. "Financial Integration with and without International Policy Coordination," Working Papers 91-67, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
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  10. Xavier Ragot, 2005. "The real effect of inflation in liquidity constrained models," PSE Working Papers 2005-51, PSE (Ecole normale supérieure). [Downloadable!]
  11. Gaetano Antinolfi & Costas Azariadis & James B. Bullard, 2007. "The optimal inflation target in an economy with limited enforcement," Working Papers 2007-037, Federal Reserve Bank of St. Louis. [Downloadable!]
  12. Jean-Pascal Bénassy, 1999. "On the Optimality of Activist Policies with a Less Informed Government," Discussion Papers of DIW Berlin 186, DIW Berlin, German Institute for Economic Research. [Downloadable!]
  13. Jean-Pascal Bénassy, 2006. "Employment targeting," PSE Working Papers 2006-20, PSE (Ecole normale supérieure). [Downloadable!]
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