Implementing the Friedman Rule
(190 K)
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NBER Working Paper No. 8821
Issued in March 2002
NBER Program(s): ME
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.
Published: Ireland, Peter N. "Implementing The Friedman Rule," Review of Economic Dynamics, 2003, v6(1,Jan), 120-134.
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