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Optimal Monetary Policy in OLG Models with Long‐Lived Agents: A Note
Author(s) -
HIRAGUCHI RYOJI
Publication year - 2014
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/jpet.12050
Subject(s) - economics , overlapping generations model , offset (computer science) , monetary policy , distortion (music) , monetary economics , cash , nominal interest rate , interest rate , macroeconomics , keynesian economics , microeconomics , real interest rate , computer science , amplifier , computer network , bandwidth (computing) , programming language
This note reexamines Crettez, Michel, and Wigniolle ([CRETTEZ, P., 2002]), who studied a two‐period overlapping generations model with cash‐in‐advance constraints and showed that a combination of saving tax and monetary policy involving positive nominal interest rates could achieve the first‐best allocation. The note shows that their result does not hold if agents live for three periods. The implementation of the first best requires the Friedman rule. If agents are long‐lived, saving tax cannot offset a distortion caused by the positive nominal interest rate.