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Optimal monetary policy with heterogeneous agents: a case for inflation

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  • Theodore Palivos

Abstract

This paper analyses the role of monetary policy in an overlapping-generations monetary growth model with two types of agents, who exhibit a different degree of altruism towards their descendants. It is shown that changes in the money growth rate have significant distributional effects. Furthermore, the optimal rate of monetary expansion is, in general, higher than the one implied by the Friedman rule and may, in fact, yield a small but positive rate of inflation, even though capital is invariant to changes in the money growth rate. Finally, this optimal rate of monetary expansion takes higher values as the society's aversion towards inequality increases. Copyright 2005, Oxford University Press.

Suggested Citation

  • Theodore Palivos, 2005. "Optimal monetary policy with heterogeneous agents: a case for inflation," Oxford Economic Papers, Oxford University Press, vol. 57(1), pages 34-50, January.
    • Handle: RePEc:oup:oxecpp:v:57:y:2005:i:1:p:34-50
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    File URL: http://hdl.handle.net/10.1093/oep/gpi007
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    Cited by:

    1. Joydeep Bhattacharya & Joseph H. Haslag & Antoine Martin, 2005. "The Tobin effect and the Friedman rule," Staff Reports 224, Federal Reserve Bank of New York.
    2. Mikhail Pakhnin, 2021. "Collective Choice with Heterogeneous Time Preferences," CESifo Working Paper Series 9141, CESifo.
    3. Turdaliev, Nurlan, 2009. "Transparency in monetary policy: A general equilibrium approach," Economic Modelling, Elsevier, vol. 26(3), pages 608-613, May.
    4. Bhattacharya, Joydeep & Haslag, Joseph & Martin, Antoine, 2009. "Optimal monetary policy and economic growth," European Economic Review, Elsevier, vol. 53(2), pages 210-221, February.
    5. Olivier Ledoit, 2011. "The redistributive effects of monetary policy," ECON - Working Papers 044, Department of Economics - University of Zurich.
    6. Arbex, Marcelo & Turdaliev, Nurlan, 2011. "Optimal monetary and audit policy with imperfect taxation," Journal of Macroeconomics, Elsevier, vol. 33(2), pages 327-340, June.
    7. Hazra, Devika, 2022. "Does monetary policy favor the skilled? − Distributional role of monetary policy," The Quarterly Review of Economics and Finance, Elsevier, vol. 86(C), pages 65-86.
    8. Kirill Borissov & Stefano Bosi & Thai Ha-Huy & Mikhail Pakhnin, 2023. "Heterogeneous bequests and social inequalities," Documents de recherche 23-05, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
    9. Oscar Mauricio Valencia, 2006. "Monetary Policy With Liquidity Frictions," Documentos CEDE 3252, Universidad de los Andes, Facultad de Economía, CEDE.
    10. Takemasa Oda, 2016. "Optimal Inflation Rate in a Life-Cycle Economy," IMES Discussion Paper Series 16-E-05, Institute for Monetary and Economic Studies, Bank of Japan.

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