Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153881
Authors: 
Faria, Joao Ricardo
McAdam, Peter
Year of Publication: 
2012
Series/Report no.: 
ECB Working Paper 1448
Abstract: 
We adapt the (Sidrauski, 1967) monetary model to study the hypothesis of anticipation of future consumption. We assume that anticipation of future consumption affects an agent's instantaneous utility and that all effects of future consumption on current wellbeing are captured by the stock of future consumption. Monetary policy effectiveness is thereby reduced and a zero nominal lower interest rate (and thus the Friedman Rule) is destabilizing. Given this, we can derive a "just stable" equilibrium nominal interest rate with matching definitions for inflation and monetary growth. We demonstrate that these implied lower bounds match their historical analogues well.
Subjects: 
Anticipation
consumption behavior
Friedman rule
money and growth
Money demand
stability
JEL: 
E41
D91
O42
Document Type: 
Working Paper

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