Optimal money growth in a limited participation model with heterogeneous agents

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Başçı E., Saglam I.

Review of Economic Design, cilt.9, sa.2, ss.91-108, 2005 (Scopus) identifier

  • Yayın Türü: Makale / Tam Makale
  • Cilt numarası: 9 Sayı: 2
  • Basım Tarihi: 2005
  • Doi Numarası: 10.1007/s10058-005-0122-1
  • Dergi Adı: Review of Economic Design
  • Derginin Tarandığı İndeksler: Scopus
  • Sayfa Sayıları: ss.91-108
  • Anahtar Kelimeler: Cash-in-advance, Friedman rule, Inflation, Limited participation
  • TED Üniversitesi Adresli: Hayır

Özet

This paper studies optimal money growth in a cash-in-advance production economy with heterogeneity in patience levels and know-how. We show that the rate of deflation suggested by the Friedman rule is limited by the subjective discount rate of the most patient agent in the economy. The output distortion due to cash-in-advance constraints on firms can completely be eliminated by means of the Friedman rule if and only if firms are run by the most patient agents. © Springer-Verlag 2005.