Finance Papers

Document Type

Journal Article

Date of this Version

5-1987

Publication Source

Journal of Monetary Economics

Volume

19

Issue

3

Start Page

437

Last Page

450

DOI

10.1016/0304-3932(87)90008-0

Abstract

In the absence of monetary superneutrality, inflation affects capital accumulation and the demand for real balances. This paper derives the combination of monetary and lump-sum fiscal policy which maximizes the sum of discounted utilities of representative consumers in present and future generations. Under the optimal policy package, the steady state has a zero nominal interest rate and has monetary contraction at the rate of intergenerational discount. As the rate of intergenerational discount rate approaches zero, optimal policy maximizes steady state utility of the representative consumer. In this case, the optimal steady state is characterized by a constant nominal money supply.

Copyright/Permission Statement

© 1987. This manuscript version is made available under the CC-BY-NC-ND 4.0 license

Embargo Date

8-25-2006

Share

COinS
 

Date Posted: 27 November 2017

This document has been peer reviewed.