This paper addresses whether the Friedman rule can be optimal in an economy in which the Tobin effect is operative. We present an overlapping generations economy with capital in which limited communication and stochastic relocation create an endogenous transaction role for fiat money. We assume...

We explore the connection between optimal monetary policy and heterogeneity among agents. We utilize a standard monetary economy with two types of agents that differ in the marginal utility they derive from real money balances-a framework that produces a nondegenerate stationary distribution of...

In this article Joydeep Bhattacharya and Joseph Haslag explore the effect of fiscal policy actions on long-run prices and the inflation rate. They study a model economy in which the central bank is not independent. Indeed, the government explicitly relies on the central bank for a predetermined...

We study several popular monetary models which generate a non-degenerate stationary distribution of money holdings. Across these environments, our principal finding is as follows: a monetary policy that sets long run nominal interest rates to zero (the Friedman rule) does not typically maximize...

Using a pure-exchange overlapping generations model in which money is valued because of a legal restriction, we show the following: a) a benevolent government may make some use of the inflation tax in conjunction with a lump-sum tax on the young but not if lump-sum taxes on the old are...

Sargent and Wallace (1981) study the feasibility of a bond-financed increase in government spending. In their "unpleasant monetarist arithmetic," Sargent and Wallace show how using bonds to finance a permanent deficit today may necessitate faster money growth in the future, yielding higher...

Does it matter in a revenue-neutral setting if the government changes the inflation tax base or the inflation tax rate? We answer this question within the context of an overlapping generations model in which government bonds, capital, and cash reserves coexist. We consider experiments that...

This paper studies a overlapping generations economy with capital where limited communication and stochastic relocation create an endogenous transactions role for fiat money. We assume a production function with a knowledge-externality (Romer-style) that nests economies with endogenous growth...

Central banks typically find it difficult to turn off the "political pressure valve". This has important consequences for the types of monetary policies they implement. This paper presents an analysis of how political factors may come into play in the equilibrium determination of inflation. We...

In models of money with an infinitely-lived representative agent (ILRA models), the optimal monetary policy is almost always the Friedman rule. Overlapping generations (OG) models are different: in this paper, we study how they are different, and why. We investigate the welfare properties of...