Altermatt, Lukas and Wipf, Christian (2024) Liquidity, the Mundell-Tobin Effect, and the Friedman Rule. Journal of Money, Credit and Banking, 56 (5). pp. 1235-1259. DOI https://doi.org/10.1111/jmcb.12994
Altermatt, Lukas and Wipf, Christian (2024) Liquidity, the Mundell-Tobin Effect, and the Friedman Rule. Journal of Money, Credit and Banking, 56 (5). pp. 1235-1259. DOI https://doi.org/10.1111/jmcb.12994
Altermatt, Lukas and Wipf, Christian (2024) Liquidity, the Mundell-Tobin Effect, and the Friedman Rule. Journal of Money, Credit and Banking, 56 (5). pp. 1235-1259. DOI https://doi.org/10.1111/jmcb.12994
Abstract
We investigate how a positive relation between inflation and capital investment (the Mundell-Tobin effect) affects optimal monetary policy in a framework that combines overlapping generations and new Monetarist models. We find that inflation rates above the Friedman rule are optimal if and only if there is a Mundell-Tobin effect. In the absence of the Mundell-Tobin effect, the Friedman rule is optimal. With a Mundell-Tobin effect, increasing inflation above the Friedman rule leads to a first-order welfare gain from increasing capital investment, and only to a second-order welfare loss from reducing consumption in markets where liquidity matters.
Item Type: | Article |
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Uncontrolled Keywords: | new monetarism; overlapping generations; optimal monetary policy |
Divisions: | Faculty of Social Sciences Faculty of Social Sciences > Economics, Department of |
SWORD Depositor: | Unnamed user with email elements@essex.ac.uk |
Depositing User: | Unnamed user with email elements@essex.ac.uk |
Date Deposited: | 31 Aug 2022 13:23 |
Last Modified: | 07 Aug 2024 16:26 |
URI: | http://repository.essex.ac.uk/id/eprint/33310 |
Available files
Filename: J of Money Credit Banking - 2022 - ALTERMATT - Liquidity the Mundell Tobin Effect and the Friedman Rule.pdf
Licence: Creative Commons: Attribution-Noncommercial 3.0