The optimal inflation rate is an outstanding issue in monetary theory and policy. Previous work attempting to … rationalize positive inflation targets chosen by central banks is subject to a major criticism, since its conclusions depend on … the assumption that only one currency is available to agents. This paper presents a model in which the inflation of the …

return on assets is determined by incentives eliciting voluntary debt repayment. I show that the inflation rate or, more …, money is used in equilibrium and the optimal inflation rate is positive. …