Working Paper: NBER ID: w8821
Authors: Peter N. Ireland
Abstract: In cash-in-advance models, necessary and sufficient conditions for the existence of an equilibrium with zero nominal interest rates and Pareto optimal allocations place restrictions mainly on the very long-run, or asymptotic, behavior of the money supply. When these asymptotic conditions are satisfied, they leave the central bank with a great deal of flexibility to manage the money supply over any finite horizon. But what happens when these asymptotic conditions fail to hold? This paper shows that the central bank can still implement the Friedman rule if its actions are appropriately constrained in the short run.
Keywords: No keywords provided
JEL Codes: E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| asymptotic behavior of the money supply (E51) | central bank's ability to achieve zero nominal interest rates (E43) |
| asymptotic behavior of the money supply (E51) | Pareto optimal allocations (D61) |
| central bank's ability to achieve zero nominal interest rates (E43) | implementation of the Friedman rule (E19) |
| central bank's actions constrained appropriately in the short run (E58) | implementation of the Friedman rule (E19) |