This paper is concerned with the optimal inflation rate in an overlapping-generations economy in which (i) aggregate output is constrained by a standard neoclassical production function with diminishing marginal products for both capital and labor and (ii) the transaction-facilitating services of money are represented by means of a money-in-the-utility-function specification. With monetary injections provided by lump-sum transfers, the famous Chicago Rule prescription for monetary growth is necessary for Pareto optimality but a competitive equilibrium may fail to be Pareto optimal with that rule in force because of capital over accumulation. The latter possibility does not exist, however, if the economy includes an asset that is productive and non-reproducible--i.e., if the economy is one with land. As this conclusion is independent of the monetary aspects of the model, it is argued that the possibility of capital over accumulation should not be regarded as a matter of theoretical concern, even in the absence of government debt, intergenerational altruism, and social security systems or other "social contrivances."
*Published:
McCallum, Bennett T."The Optimal Inflation Rate in an Overlapping-Generations Economy with Land," New Approaches to Monetary Economics, eds. William Barnett and Kenneth J. Singleton, Cambridge, U.K.: Cambridge University Press.
"The Optimal Inflation Rate in an Overlapping-Generations Economy with Land ." From New Approaches to Monetary Economics, edited by William A. Barnett and Kenneth J. Singleton, pp. 325-339, New York: Cambridge University Press, 1987.
You may purchase this paper on-line in .pdf format
from SSRN.com ($5) for electronic delivery.
Machine-readable bibliographic record -
MARC,
RIS,
BibTeX
