Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/192884 
Year of Publication: 
2017
Series/Report no.: 
Working Paper No. 272
Publisher: 
University of Zurich, Department of Economics, Zurich
Abstract: 
We integrate an overlapping generations model into a new monetarist framework and show that the Friedman rule is not optimal. This is because inflation makes saving for retirement less attractive, such that young agents optimally choose to increase their consumption at the expense of lower savings. On the other hand, old agents consume less due to the inflation tax. We show that for low inflation rates, the former effect dominates the latter, such that the Friedman rule is not optimal. However, this effect disappears for higher inflation rates such that the optimal rate is at an intermediate level.
Subjects: 
Overlapping generations
monetary theory
Friedman rule
JEL: 
D90
E31
E41
E50
Document Type: 
Working Paper

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