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The Optimal Quantity of Money Consistent with Positive Nominal Interest Rates

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  • Harashima, Taiji

Abstract

The Friedman rule is strongly immune to most model modifications although it has not actually been observed. The Friedman rule implicitly assumes that a government is perfectly under the control of the representative household. This paper shows that, if a government is not perfectly under the control of the representative household, but also pursues political objectives, the optimal quantity of money generally is accompanied by positive nominal interest and inflation rates through the simultaneous optimization of government and the representative household. The fact that nominal interest and inflation rates are usually positive conversely implies that a government usually pursues political objectives.

Suggested Citation

  • Harashima, Taiji, 2007. "The Optimal Quantity of Money Consistent with Positive Nominal Interest Rates," MPRA Paper 1839, University Library of Munich, Germany, revised 19 Feb 2007.
  • Handle: RePEc:pra:mprapa:1839
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    File URL: https://mpra.ub.uni-muenchen.de/1839/1/MPRA_paper_1839.pdf
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    References listed on IDEAS

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    Cited by:

    1. Harashima, Taiji, 2007. "Hyperinflation, disinflation, deflation, etc.: A unified and micro-founded explanation for inflation," MPRA Paper 3836, University Library of Munich, Germany.
    2. Harashima, Taiji, 2013. "The Phillips Curve and a Micro-foundation of Trend Inflation," MPRA Paper 51305, University Library of Munich, Germany.
    3. Harashima, Taiji, 2008. "A Microfounded Mechanism of Observed Substantial Inflation Persistence," MPRA Paper 10668, University Library of Munich, Germany.
    4. Harashima, Taiji, 2013. "Escaping a Liquidity Trap: Keynes’ Prescription Is Right But His Reasoning Is Wrong," MPRA Paper 48115, University Library of Munich, Germany.

    More about this item

    Keywords

    The Optimal Quantity of Money; The Friedman rule; Inflation; The fiscal theory of the price level; Leviathan;

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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