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Temptation And Self-Control In A Monetary Economy

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  • Hiraguchi, Ryoji

Abstract

We construct a microfounded model of money with Gul–Pesendorfer preferences. In each period, agents are tempted to spend all their money by the end of the period, and they suffer from the forgone utility that could have been obtained by adopting the tempting choice. We find that the Friedman rule may not be optimal. A positive nominal interest rate improves welfare because it reduces the real money balances and renders the temptation less attractive. The welfare gained by deviating from the rule is equivalent to 0.67% of consumption.

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  • Hiraguchi, Ryoji, 2018. "Temptation And Self-Control In A Monetary Economy," Macroeconomic Dynamics, Cambridge University Press, vol. 22(4), pages 1076-1095, June.
    • Handle: RePEc:cup:macdyn:v:22:y:2018:i:04:p:1076-1095_00
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    Cited by:

    1. Koichi Futagami & Daiki Maeda, 2022. "Naive Agents with Non-unitary Discounting Rate in a Monetary Economy," Discussion Papers in Economics and Business 21-28, Osaka University, Graduate School of Economics.
    2. Airaudo, Marco, 2020. "Temptation and forward-guidance," Journal of Economic Theory, Elsevier, vol. 186(C).
    3. Kang, Minwook & Kim, Eungsik, 2023. "A government policy with time-inconsistent consumers," Journal of Economic Behavior & Organization, Elsevier, vol. 214(C), pages 44-67.
    4. Daiki Maeda, 2019. "A Monetary Search Model with Non-unitary Discounting," ISER Discussion Paper 1062, Institute of Social and Economic Research, Osaka University.

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