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Optimal Monetary Growth


  • Andrew B. Abel


In the absence of monetary superneutrality, inflation affects capital accumulation and the demand for real balances. This paper derives the combination of monetary and lump-sum fiscal policy which maximizes the sum of discounted utilities of representative consumers in present and future generations. Under the optimal policy package, the steady state has a zero nominal interest rate and has monetary contraction at the rate of intergenerational discount. As the rate of intergenerational discount rate approaches zero, optimal policy maximizes steady state utility of the representative consumer. In this case, the optimal steady state is characterized by a constant nominal money supply.

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  • Andrew B. Abel, 1987. "Optimal Monetary Growth," NBER Working Papers 2136, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:2136
    Note: EFG

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    Cited by:

    1. Antinolfi, Gaetano & Azariadis, Costas & Bullard, James, 2016. "The Optimal Inflation Target In An Economy With Limited Enforcement," Macroeconomic Dynamics, Cambridge University Press, vol. 20(02), pages 582-600, March.
    2. Akira Yakita, 2006. "Life expectancy, money, and growth," Journal of Population Economics, Springer;European Society for Population Economics, vol. 19(3), pages 579-592, July.
    3. Peter N. Ireland, 2005. "The Liquidity Trap, The Real Balance Effect, And The Friedman Rule ," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(4), pages 1271-1301, November.
    4. Soldatos, Gerasimos T. & Varelas, Erotokritos, 2014. "The Chicago Tradition and Commercial Bank Seigniorage," MPRA Paper 57721, University Library of Munich, Germany.
    5. Piotr Ciżkowicz & Marcin Hołda & Andrzej Rzońca, 2009. "Inflation and investment in monetary growth models," Bank i Kredyt, Narodowy Bank Polski, vol. 40(6), pages 9-40.
    6. Homburg Stefan, 2015. "Superneutrality of Money under Open Market Operations," Review of Economics, De Gruyter, vol. 66(3), pages 289-302, December.
    7. Firouz Gahvari & Luca Micheletto, 2012. "Monetary Policy and Redistribution: What can or cannot be Neutralized with Mirrleesian Taxes," CESifo Working Paper Series 3711, CESifo Group Munich.
    8. Erotokritos Varelas & Gerasimos T. Soldatos, 2014. "The Chicago Tradition and Commercial Bank Seigniorage," Research in World Economy, Research in World Economy, Sciedu Press, vol. 5(1), pages 29-38, March.
    9. Abel, Andrew B., 1985. "Dynamic behavior of capital accumulation in a cash-in-advance model," Journal of Monetary Economics, Elsevier, vol. 16(1), pages 55-71, July.
    10. Jean-Pascal Benassy, 2003. "Fiscal Policy and Optimal Monetary Rules in a non Ricardian Economy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(3), pages 498-512, July.
    11. Трофимов Г.Ю., 2014. "Инфляция Активов И Кредитная Экспансия В Экономике С Перекрывающимися Поколениями," Журнал Экономика и математические методы (ЭММ), Центральный Экономико-Математический Институт (ЦЭМИ), vol. 50(4), pages 89-103, октябрь.
    12. Benassy, Jean-Pascal, 2001. "On the optimality of activist policies with a less informed government," Journal of Monetary Economics, Elsevier, vol. 47(1), pages 45-59, February.
    13. Gahvari, Firouz, 2007. "The Friedman rule: Old and new," Journal of Monetary Economics, Elsevier, vol. 54(2), pages 581-589, March.
    14. Luciano Fanti, 2012. "Fertility and money in an OLG model," Discussion Papers 2012/145, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    15. Homburg, Stefan, 2017. "A Study in Monetary Macroeconomics," OUP Catalogue, Oxford University Press, number 9780198807537.
    16. Akira Yakita, 2008. "Optimal Nonlinear Taxation in an Overlapping-Generations Setting with Money as an Asset," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 64(1), pages 19-32, March.
    17. Gahvari, Firouz & Micheletto, Luca, 2014. "The Friedman rule in an overlapping-generations model with nonlinear taxation and income misreporting," Journal of Public Economics, Elsevier, vol. 119(C), pages 10-23.
    18. Takeo Hori & Koichi Futagami, 2018. "Time-Inconsistent Discounting and the Friedman Rule: The Role of Non-Unitary Discounting," Discussion Papers in Economics and Business 18-04, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
    19. Jianhuai Shi, 2002. "The Economic Effects of Inflation Tax Instruments in an Overlapping-Generations Economy with Production," Annals of Economics and Finance, Society for AEF, vol. 3(2), pages 433-451, November.
    20. Bénassy, Jean-Pascal, 2008. "Employment targeting," Economics Letters, Elsevier, vol. 99(2), pages 320-323, May.
    21. Zhu, Tao, 2008. "An overlapping-generations model with search," Journal of Economic Theory, Elsevier, vol. 142(1), pages 318-331, September.
    22. Zhu, Tao, 2007. "An Overlapping-Generations Model with Search," Working Papers 07-09, Cornell University, Center for Analytic Economics.
    23. Jean-Pascal Bénassy, 1999. "On the Optimality of Activist Policies with a Less Informed Government," Discussion Papers of DIW Berlin 186, DIW Berlin, German Institute for Economic Research.

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