Jung, Kuk Mo (2016): Uncertainty-Induced Dynamic Inefficiency and the Optimal Inflation Rate.
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Abstract
I construct an overlapping-generations model of money with Epstein and Zin (1989) preferences and study how aggregate output uncertainty affects the optimal rate of inflation. When money only serves as savings instruments, I find that the optimality of Friedman Rule breaks up only if agents prefer late resolution of uncertainty. However, if an additional role of money as a medium of exchange is introduced, then the Friedman Rule becomes generally suboptimal regardless of agents' preferences for the timing of uncertainty resolution. The aggregate output uncertainty, nevertheless, crucially determines the level of optimal inflation rate in this case.
Item Type: | MPRA Paper |
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Original Title: | Uncertainty-Induced Dynamic Inefficiency and the Optimal Inflation Rate |
Language: | English |
Keywords: | money; overlapping generations; recursive preferences; optimal inflation |
Subjects: | E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies |
Item ID: | 71579 |
Depositing User: | Dr. Kuk Mo Jung |
Date Deposited: | 25 May 2016 05:57 |
Last Modified: | 27 Sep 2019 09:13 |
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URI: | https://mpra.ub.uni-muenchen.de/id/eprint/71579 |
Available Versions of this Item
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Uncertainty-Induced Dynamic Inefficiency and the Optimal Inflation Rate. (deposited 26 Feb 2016 05:41)
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Uncertainty-Induced Dynamic Inefficiency and the Optimal Inflation Rate. (deposited 26 Mar 2016 11:18)
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Uncertainty-Induced Dynamic Inefficiency and the Optimal Inflation Rate. (deposited 16 May 2016 13:58)
- Uncertainty-Induced Dynamic Inefficiency and the Optimal Inflation Rate. (deposited 25 May 2016 05:57) [Currently Displayed]
- Uncertainty-Induced Dynamic Inefficiency and the Optimal Inflation Rate. (deposited 13 Apr 2016 06:57)
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Uncertainty-Induced Dynamic Inefficiency and the Optimal Inflation Rate. (deposited 16 May 2016 13:58)
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Uncertainty-Induced Dynamic Inefficiency and the Optimal Inflation Rate. (deposited 26 Mar 2016 11:18)