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Optimal Inflation in a Model of Inside Money: a Further Result

Author

Listed:
  • Wataru Nozawa

    (Department of Engineering, Kyushu University)

  • Hoonsik Yang

    (Department of Economics and Trade, Sejong University)

Abstract

We extend the Deviatov and Wallace (2014) model of inside money in which they find some examples where inflation is beneficial. Their model was restrictive in that it could not address policies that provide interests on cash due to the small upper bound on money holdings. With a higher upper bound on money holdings, such policies can be engineered without inflation, and it is uncertain whether inflation is necessary for the optima. We investigate this possibility and confirm their results in a more generalized setting. At the optima, interest on cash is not provided, and positive inflation arises in a similar manner to Deviatov and Wallace (2014).

Suggested Citation

  • Wataru Nozawa & Hoonsik Yang, 2018. "Optimal Inflation in a Model of Inside Money: a Further Result," Annals of Economics and Finance, Society for AEF, vol. 19(1), pages 137-150, May.
    • Handle: RePEc:cuf:journl:y:2018:v:19:i:1:nozawa:yang
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    References listed on IDEAS

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    More about this item

    Keywords

    Friedman rule; inside-money; inflation; monitoring; optima;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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