Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/228901 
Year of Publication: 
2020
Series/Report no.: 
Discussion Papers No. 20-13
Publisher: 
University of Bern, Department of Economics, Bern
Abstract: 
We investigate how the Mundell-Tobin effect, i.e., a positive relation between in ation and capital investment, changes the optimal monetary policy prescription in a framework that combines overlapping generations and new monetarist models. We find that the Friedman rule is optimal if and only if there is no Mundell-Tobin effect. A Mundell-Tobin effect is more likely to occur at the Friedman rule if capital is relatively liquid, and if the agents' risk aversion is relatively low. If the Friedman rule is not optimal, the optimal money growth rate lies between the Friedman rule and a constant money stock. We also show that it is more efficient to implement de ationary monetary policies by raising lump-sum taxes on old agents only.
Subjects: 
New monetarism
overlapping generations
optimal monetary policy
JEL: 
E4
E5
Document Type: 
Working Paper

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