F ifteen years ago, Milton Friedman’s 1957 treatise A Theory of the Consumption Function seemed badly dated. Dynamic optimization theory had not been employed much in economics when Friedman wrote, and utility theory was still comparatively primitive, so his statement of the “permanent income hypothesis” never actually specified a formal mathematical model of behavior derived explicitly from ut...

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...