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Optimal Monetary Policy, Taxes, and Public Debt in an Intertemporal Equilibrium

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  • Bertrand Crettez
  • Philippe Michel
  • Bertrand Wigniolle

Abstract

This article is devoted to a study of the optimal monetary and fiscal policies within the framework of an overlapping generations model with cash‐in‐advance constraints. We first characterize the intertemporal equilibrium. Then we show how to decentralize the optimal growth path using available policy instruments (i.e., labor income and capital taxes, public debt, money supply). Between the four instruments: wages and capital taxes, debt and monetary policy, one is redundant among the three last which implies that the Friedman Rule is only a special case.

Suggested Citation

  • Bertrand Crettez & Philippe Michel & Bertrand Wigniolle, 2002. "Optimal Monetary Policy, Taxes, and Public Debt in an Intertemporal Equilibrium," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 4(3), pages 299-316, July.
    • Handle: RePEc:bla:jpbect:v:4:y:2002:i:3:p:299-316
    DOI: 10.1111/1467-9779.00099
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    Cited by:

    1. Marwil J. Dávila-Fernández & Germana Giombini & Edgar J. Sánchez-Carrera, 2023. "Climateflation and monetary policy in an environmental OLG growth model," Department of Economics University of Siena 905, Department of Economics, University of Siena.
    2. Gahvari, Firouz & Micheletto, Luca, 2012. "Monetary policy and redistribution: What can or cannot be neutralized with Mirrleesian taxes," Working Paper Series, Center for Fiscal Studies 2012:5, Uppsala University, Department of Economics.
    3. Firouz Gahvari, 2012. "The Friedman Rule in a Model with Endogenous Growth and Cash-in-Advance Constraint," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(5), pages 787-823, August.
    4. Gahvari, Firouz, 2007. "The Friedman rule: Old and new," Journal of Monetary Economics, Elsevier, vol. 54(2), pages 581-589, March.
    5. Ryoji Hiraguchi, 2014. "Optimal Monetary Policy in OLG Models with Long-Lived Agents: A Note," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 16(1), pages 164-172, February.
    6. Yanagihara, Mitsuyoshi & Lu, Chen, 2013. "Cash-in-advance constraint, optimal monetary policy, and human capital accumulation," Research in Economics, Elsevier, vol. 67(3), pages 278-288.
    7. Fedotenkov, Igor, 2015. "Population ageing and prices in an OLG model with money created by credits," MPRA Paper 66056, University Library of Munich, Germany.
    8. Firouz Gahvari & Luca Micheletto, 2019. "Heterogeneity, monetary policy, Mirrleesian taxes, and the Friedman rule," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 67(4), pages 983-1018, June.
    9. Fedotenkov, Igor, 2018. "Population ageing and inflation with endogenous money creation," Research in Economics, Elsevier, vol. 72(3), pages 392-403.

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