Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/60673
Authors: 
Bhattacharya, Joydeep
Haslag, Joseph
Martin, Antoine
Singh, Rajesh
Year of Publication: 
2005
Series/Report no.: 
Staff Report, Federal Reserve Bank of New York 208
Abstract: 
We explore the connection between optimal monetary policy and heterogeneity among agents. We utilize a standard monetary economy with two types of agents that differ in the marginal utility they derive from real money balances — a framework that produces a nondegenerate stationary distribution of money holdings. Without type-specific fiscal policy, we show that the zero-nominal-interest-rate policy (the Friedman rule) does not maximize type-specific welfare; further, it may not maximize aggregate ex ante social welfare. Indeed one or, more surprisingly, both types of agents may benefit if the central bank deviates from the Friedman rule.
JEL: 
E31
E51
E58
Document Type: 
Working Paper

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