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The natural interest rate in OLG modelling: A rehabilitation

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  • van Suntum, Ulrich

Abstract

A simple OLG model is used to show that the natural interest rate is superior to the golden rule. This remains valid with public goods, provided these are financed in an appropriate way. In order to preserve the natural interest rate, the so-called helicopter money appears to be more appropriate than the normal credit money. Dynamic inefficiency cannot occur, if either land or neutral (helicopter) money is available as an alternative store of private wealth. Thus, the frequently proposed failure of OLG-models to satisfy the first fundamental theorem of welfare economics does not exist. The paper both generalizes and summarizes some key results from my recent book (van Suntum 2017).

Suggested Citation

  • van Suntum, Ulrich, 2018. "The natural interest rate in OLG modelling: A rehabilitation," CAWM Discussion Papers 103, University of Münster, Münster Center for Economic Policy (MEP).
    • Handle: RePEc:zbw:cawmdp:103
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

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