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The Friedman Rule in a Model with Endogenous Growth and Cash‐in‐Advance Constraint
Author(s) -
GAHVARI FIROUZ
Publication year - 2012
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2012.00511.x
Subject(s) - friedman rule , economics , endogenous growth theory , constraint (computer aided design) , golden rule , externality , overlapping generations model , monetary economics , human capital , cash , microeconomics , capital (architecture) , macroeconomics , monetary policy , market economy , law , mathematics , history , geometry , archaeology , political science
This paper introduces money into an overlapping‐generations model with endogenous growth. The main message of the paper is that as long as the modified golden rule is attained, the Friedman rule is optimal. The result holds regardless of the ability of the government to internalize the externality and control the level of human capital. Other results include: (i) violation of the Friedman rule for a different second‐best environment wherein human capital accumulation is controlled but not physical capital accumulation and (ii) existence of a negative relationship between money growth rate and the economy’s endogenous growth rate.