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An argument for positive nominal interest

Author

Listed:
  • Bloise, Gaetano

    (Department of Economics, Yeshiva University, and Department of Economics, University of Rome)

  • Polemarchakis, Herakles

    (Department of Economics, University of Warwick)

Abstract

In a dynamic economy, money provides liquidity as a medium of exchange.A central bank that sets the nominal rate of interest and distributes its profit to shareholders as dividends is traded in the asset market. A nominal rates of interest that tend to zero, but do not vanish, eliminate equilibrium allocations that do not converge to a Pareto optimal allocation.

Suggested Citation

  • Bloise, Gaetano & Polemarchakis, Herakles, 2015. "An argument for positive nominal interest," The Warwick Economics Research Paper Series (TWERPS) 1104, University of Warwick, Department of Economics.
    • Handle: RePEc:wrk:warwec:1104
    as

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    File URL: https://warwick.ac.uk/fac/soc/economics/research/workingpapers/2015/twerp_1104_bloise.pdf
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    References listed on IDEAS

    as
    1. Manuel S. Santos & Michael Woodford, 1997. "Rational Asset Pricing Bubbles," Econometrica, Econometric Society, vol. 65(1), pages 19-58, January.
    2. Diamond, Peter A, 1984. "Money in Search Equilibrium," Econometrica, Econometric Society, vol. 52(1), pages 1-20, January.
    3. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66(6), pages 467-467.
    4. Gaetano Bloise & Jacques H. Drèze & Herakles M. Polemarchakis, 2006. "Monetary Equilibria over an Infinite Horizon," Studies in Economic Theory, in: Christian Schultz & Karl Vind (ed.), Institutions, Equilibria and Efficiency, chapter 5, pages 69-93, Springer.
    5. F. Lobo & M. Caba-as Sáenz & R. González Pérez, 2005. "Review of economic studies of the pharmaceutical industry published over the last 20 years by Spanish economists," Chapters, in: Jaume Puig-Junoy (ed.), The Public Financing of Pharmaceuticals, chapter 11, Edward Elgar Publishing.
    6. Weiss, Laurence M, 1980. "The Effects of Money Supply on Economic Welfare in the Steady State," Econometrica, Econometric Society, vol. 48(3), pages 565-576, April.
    7. Gale, David, 1973. "Pure exchange equilibrium of dynamic economic models," Journal of Economic Theory, Elsevier, vol. 6(1), pages 12-36, February.
    8. Wilson, Charles A., 1981. "Equilibrium in dynamic models with an infinity of agents," Journal of Economic Theory, Elsevier, vol. 24(1), pages 95-111, February.
    9. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-954, August.
    10. Gaetano Bloise & Herakles Polemarchakis, 2006. "Monetary policy and dynamic efficiency in economies of overlapping generations," International Journal of Economic Theory, The International Society for Economic Theory, vol. 2(3‐4), pages 319-330, September.
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    More about this item

    Keywords

    nominal rate of interest ; dynamic efficiency;

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General

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