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Optimal Monetary Policy with Heterogeneous Agents: Is There a Case for Inflation?

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Author Info
Theodore Palivos () (Louisiana State University)

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Abstract

This paper analyzes the role of monetary policy in an overlapping generations model with two assets, capital and money, and two types of agents who exhibit different degrees of altruism towards their descendants. It is shown that changes in the money growth rate have significant distributional effects. Furthermore, the optimal rate of monetary expansion is, in general, higher than the one implied by the Friedman rule and may, in fact, yield a small but positive rate of inflation. Finally, this optimal rate of monetary expansion takes higher values as the society's aversion towards inequality increases.

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Publisher Info
Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 1999 with number 353.

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Date of creation: 01 Mar 1999
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Handle: RePEc:sce:scecf9:353

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  1. Joydeep Bhattacharya & Joseph Haslag & Antoine Martin, 2005. "The Tobin effect and the Friedman rule," Staff Reports 224, Federal Reserve Bank of New York. [Downloadable!]
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