Optimal Monetary Policy and Economic Growth

This paper studies a overlapping generations economy with capital where limitedcommunication and stochastic relocation create an endogenous transactions role for…at money. We assume a production function with a knowledge-externality (Romer-style) that nests economies with endogenous growth (AK form) and those with no longrun growth (the Diamond model). We show that the Tobin effect is always operative.Under CRRA preferences, irrespective of the degree of risk aversion, we also show thatfor some positive inflation to be optimal and for the Friedman rule to be sub-optimal, itis sufficient (but not necessary) that there be a mild degree of social increasing returns.[...]