We evaluate the Friedman rule for optimal monetary policy in a laboratory economy based on Lagos–Wright (Journal of Economic Theory 145 (2010), 1508–24). explore two implementations Friedman's rule: one involving deflationary and another where interest is paid money. compare welfare consequences with other policies: constant money supply regime grows at k%. Counter to theory, we find that not w...

This paper incorporates a distortionary tax into a microfoundations of money framework and revisits the optimum quantity of money. The money constraint in the decentralized market plays a key role in the optimal policy. Only if the constraint is binding can fiscal policy alter the agents’ surplus shares; monetary, but not fiscal, policy affects the agents’ bargaining position, leaving a special...

In a sticky-price model where firms finance their production inputs, there is both a lower and an upper bound on the central bank’s inflation response necessary to rule out the possibility of self-fulfilling inflation expectations. This paper shows that real wage rigidities decrease this upper bound, but coefficients in the range of those on the Taylor rule place the economy well within the det...

this research follows two aims in case of the iranian economy. first, study of the presence of inflation persistency, and second, looking for an optimal monetary policy rule. results show that inflation in the economy of iran is persistent, in which, short-term and long-term effects of monetary policy should be considered. for this purpose, a loss function for the central bank with arguments of...

Economists have long argued that the best, surest way for a central bank to do its job is to adopt some sort of rule and stick to it. They reason that a central bank’s short-term objectives may be inconsistent with its long-term goals; a rule should prevent the bank from undermining long-range goals for the sake of short-term results.1 Using a rule also makes a central bank’s actions more trans...

this article examines the basic assumption of rational expectations hypothesis on iran's economy from 1966 to 2003. this assumption suggests the neutrality or ineffectiveness of money policy on the development of real variables of production and employment. the results from estimation of production equation do not support the significant influence of unanticipated component of money growth...

This paper considers the welfare consequences of two particularly simple rules for monetary policy: an interest rate peg and a money growth peg. The model economy consists of a real side that is the standard real business cycle model, and a monetary side that amounts to imposing cash-in-advance constraints on certain market transactions. The paper also considers the effect of assuming a rigidit...

Woodford (2007) argues that it is not appropriate to regard inflation in the steady state of New Keynesian models as determined by steady-state money growth. Woodford instead argues that the intercept term in the monetary authority’s interest-rate policy rule determines steady-state inflation. In this paper, I offer an alternative interpretation of steady-state behavior, according to which it i...

One of the most significant changes in monetary economics at beginning twenty-first century has been virtual disappearance what was once a dominant focus, role money policy, and parallelly, liquidity preference-money supply (LM) curve. Economists used to consider policy with help LM curve as part analytical framework which captures demand for money. However, workhorse model modern theory New Ke...