The Friedman Rule in a Model with Endogenous Growth and Cash-in-Advance Constraint

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Abstract

This paper introduces money into an overlapping-generations model with endogenous growth. The main message of the paper is that as long as the modified golden rule is attained, the Friedman rule is optimal. The result holds regardless of the ability of the government to internalize the externality and control the level of human capital. Other results include: (i) violation of the Friedman rule for a different second-best environment wherein human capital accumulation is controlled but not physical capital accumulation and (ii) existence of a negative relationship between money growth rate and the economy's endogenous growth rate.

Original languageEnglish (US)
Pages (from-to)787-823
Number of pages37
JournalJournal of Money, Credit and Banking
Volume44
Issue number5
DOIs
StatePublished - Aug 2012

Keywords

  • Endogenous growth
  • Friedman rule
  • Investment in human capital
  • Overlapping generations
  • Second-best

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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