TY  - JOUR
AU  - McCallum,Bennett T.
TI  - The Optimal Inflation Rate in an Overlapping-Generations Economy with Land
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 1892
PY  - 1988
Y2  - June 1988
UR  - http://www.nber.org/papers/w1892
L1  - http://www.nber.org/papers/w1892.pdf
N1  - Author contact info:
Bennett T. McCallum
Tepper School of Business, Posner 256
Carnegie Mellon University
Pittsburgh, PA 15213
Tel: 412/268-2347
Fax: 412/268-6830
E-Mail: bm05@andrew.cmu.edu
AB  - 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."
ER  -