The optimum quantity of money: Theory and evidence

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Journal of Money Credit and Banking, (1997)
To cite or link this document: Mulligan, Casey B. Sala-i-Martin, Xavier
dc.contributor.other Universitat Pompeu Fabra. Departament d'Economia i Empresa 1997-06-01
dc.identifier.citation Journal of Money Credit and Banking, (1997)
dc.description.abstract In this paper we propose a simple and general model for computing the Ramsey optimal inflation tax, which includes several models from the previous literature as special cases. We show that it cannot be claimed that the Friedman rule is always optimal (or always non--optimal) on theoretical grounds. The Friedman rule is optimal or not, depending on conditions related to the shape of various relevant functions. One contribution of this paper is to relate these conditions to {\it measurable} variables such as the interest rate or the consumption elasticity of money demand. We find that it tends to be optimal to tax money when there are economies of scale in the demand for money (the scale elasticity is smaller than one) and/or when money is required for the payment of consumption or wage taxes. We find that it tends to be optimal to tax money more heavily when the interest elasticity of money demand is small. We present empirical evidence on the parameters that determine the optimal inflation tax. Calibrating the model to a variety of empirical studies yields a optimal nominal interest rate of less than 1\%/year, although that finding is sensitive to the calibration.
dc.language.iso eng
dc.relation.ispartofseries Economics and Business Working Papers Series; 229
dc.rights L'accés als continguts d'aquest document queda condicionat a l'acceptació de les condicions d'ús establertes per la següent llicència Creative Commons
dc.title The optimum quantity of money: Theory and evidence
dc.type info:eu-repo/semantics/workingPaper 2014-06-03T07:13:54Z
dc.subject.keyword Statistics, Econometrics and Quantitative Methods
dc.subject.keyword optimal monetary policy
dc.subject.keyword inflation tax
dc.rights.accessRights info:eu-repo/semantics/openAccess

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