The Tobin effect and the Friedman rule
By: Joydeep Bhattacharya, Joseph Haslag, and Antoine Martin.
Contributors: Haslag, Joseph H.; Martin, Antoine.; Federal Reserve Bank of New York.
Series: Staff reports ;; no. 224; Staff reports (Federal Reserve Bank of New York : Online) ;; no. 224.
Publisher: Federal Reserve Bank of New York
Published: 2005
Place of publication: [New York, N.Y.]
Language: eng
Format: Electronic resource
Subjects: Monetary policy -- Mathematical models.; Money supply -- Mathematical models.; Inflation (Finance) -- Mathematical models.
Description: "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 a production function with a knowledge externality (Romer-style) that nests economies with endogenous growth (AK form) and those with no long-run growth (the Diamond model).  With logarithmic utility, the "anti-Tobin effect" is operative, and the Friedman rule is optimal (that is, stationary-welfare-maximizing) regardless of whether or not there is long-run growth.  Under the more general CRRA (constant relative risk aversion) form of preferences, we show that an operative anti-Tobin effect is a sufficient condition for the Friedman rule to be optimal.  Also, contrary to models with linear storage technologies, our model shows that zero inflation is not optimal"--Federal Reserve Bank of New York web site.
Notes: Includes bibliographical references.
Title from PDF file as viewed on 10/27/2005.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.