Zero nominal interest rates: why they're good and how to get them
This study shows that in a standard one-sector neoclassical growth model, in which money is introduced with a cash-in-advance constraint, zero nominal interest rates are optimal. Milton Friedman argued in 1969 that zero nominal rates are necessary for efficient resource allocation. This study shows that they are not only necessary but sufficient. The study also characterizes the monetary policies that will implement zero rates. The set of such policies is quite large. The only restriction these policies must satisfy is that asymptotically money shrinks at a rate no greater than the rate of discount.
Volume (Year): (1998)
Issue (Month): Spr ()
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References listed on IDEAS
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- Townsend, Robert M., 1987. "Asset-return anomalies in a monetary economy," Journal of Economic Theory, Elsevier, vol. 41(2), pages 219-247, April.
- V. V. Chari & Lawrence J. Christiano & Patrick J. Kehoe, 1993.
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NBER Working Papers
4443, National Bureau of Economic Research, Inc.
- Chari, V. V. & Christiano, Lawrence J. & Kehoe, Patrick J., 1996. "Optimality of the Friedman rule in economies with distorting taxes," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 203-223, April.
- V.V. Chari & Lawrence J. Christiano & Patrick J. Kehoe, 1993. "Optimality of the Friedman rule in economies with distorting taxes," Staff Report 158, Federal Reserve Bank of Minneapolis.
- Robert E. Lucas Jr. & Nancy L. Stokey, 1984.
"Money and Interest in Cash-In-Advance Economy,"
628, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Cole, Harold L & Stockman, Alan C, 1992.
"Specialization, Transactions Technologies, and Money Growth,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(2), pages 283-98, May.
- Cole, H. & Stockman, A.C., 1988. "Specialization, Transactions Technologies, And Money Growth," RCER Working Papers 153, University of Rochester - Center for Economic Research (RCER).
- Harold L. Cole & Alan C. Stockman, 1988. "Specialization, Transactions Technologies, and Money Growth," NBER Working Papers 2724, National Bureau of Economic Research, Inc.
- Grandmont, Jean-Michel & Younes, Yves, 1972. "On the Role of Money and the Existence of a Monetary Equilibrium," Review of Economic Studies, Wiley Blackwell, vol. 39(3), pages 355-72, July.
- Lucas, Robert E., 1984. "Money in a theory of finance," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 21(1), pages 9-46, January.
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