Aruoba, S. Boragan; Chugh, Sanjay K. - In: Journal of Economic Theory 145 (2010) 5, pp. 1618-1647
We study optimal fiscal and monetary policy in an environment where explicit frictions give rise to valued money, making money essential in the sense that it expands the set of feasible trades. The two main results are that the Friedman Rule is typically not optimal, and the long-run capital...