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Some results on the optimality and implementation of the Friedman rule in the Search Theory of Money

  • Lagos, Ricardo

I characterize a large family of monetary policies that implement Milton Friedman's prescription of zero nominal interest rates in a monetary search economy with multiple assets and aggregate uncertainty. This family of optimal policies is defined by two properties: (i) the money supply must be arbitrarily close to zero for an infinite number of dates, and (ii) asymptotically, on average (over the dates when fiat money plays an essential role), the growth rate of the money supply must be at least as large as the rate of time preference.

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File URL: http://www.sciencedirect.com/science/article/B6WJ3-4Y52R6G-1/2/75429153cb1ea6b202b673986d477dc2
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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 145 (2010)
Issue (Month): 4 (July)
Pages: 1508-1524

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Handle: RePEc:eee:jetheo:v:145:y:2010:i:4:p:1508-1524
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

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  1. Ricardo Lagos, 2005. "Asset Prices and Liquidity in an Exchange Economy," 2005 Meeting Papers 143, Society for Economic Dynamics.
  2. Ricardo Lagos & Guillaume Rocheteau, 2006. "Money and capital as competing media of exchange," Working Paper 0608, Federal Reserve Bank of Cleveland.
  3. Ricardo Lagos & Randall Wright, 2002. "A unified framework for monetary theory and policy analysis," Working Paper 0211, Federal Reserve Bank of Cleveland.
  4. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-45, November.
  5. Edward J. Green & Ruilin Zhou, 2002. "Dynamic Monetary Equilibrium in a Random Matching Economy," Econometrica, Econometric Society, vol. 70(3), pages 929-969, May.
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