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The Optimal Rate of Money Creation in an Overlapping Generations Model: Numerical Simulations for the U.S. Economy

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  • Mr. A. J Hamann

Abstract

This paper develops a large scale overlapping generations model and calibrates it for the U.S. economy. Simulations with the model show that the steady state welfare maximizing inflation rate may be positive, although the numerical results are not robust. It is also shown, however, that increases in the inflation rate are never Pareto efficient because during the transition to the new steady state at least some generations are made worse-off. Using an optimality criterion that takes into account the welfare of all generations, it is found that implementing Friedman’s rule is a Pareto superior policy, and that the efficiency gains derived from implementing such rule could be substantial.

Suggested Citation

  • Mr. A. J Hamann, 1992. "The Optimal Rate of Money Creation in an Overlapping Generations Model: Numerical Simulations for the U.S. Economy," IMF Working Papers 1992/037, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1992/037
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    Cited by:

    1. Hagiwara, Reona, 2020. "Seigniorage and Japanese fiscal sustainability: Simulation analysis using an overlapping generations model," Economic Modelling, Elsevier, vol. 84(C), pages 340-356.
    2. Semedo Leite, Duarte Nuno & Härtl, Klaus, 2019. "The Aging-Inflation Puzzle: on the Interplay between Aging, Inflation and Pension Systems," VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy 203514, Verein für Socialpolitik / German Economic Association.
    3. Shimasawa, Manabu & Sadahiro, Akira, 2009. "Policy reform and optimal inflation rate for Japan in computable OLG economy," Economic Modelling, Elsevier, vol. 26(2), pages 379-384, March.

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