I am grateful to two anonymous referees for their helpful comments. I also thank the participants in the Conference in Honor of Pierre Pestieau, held at University of Liège and CORE, June 2009.
The Friedman Rule in a Model with Endogenous Growth and Cash-in-Advance Constraint
Article first published online: 26 JUL 2012
© 2012 The Ohio State University
Journal of Money, Credit and Banking
Volume 44, Issue 5, pages 787–823, August 2012
How to Cite
GAHVARI, F. (2012), The Friedman Rule in a Model with Endogenous Growth and Cash-in-Advance Constraint. Journal of Money, Credit and Banking, 44: 787–823. doi: 10.1111/j.1538-4616.2012.00511.x
- Issue published online: 26 JUL 2012
- Article first published online: 26 JUL 2012
- Received June 20, 2011 and Accepted in revised from November 15, 2011.
- Friedman rule;
- endogenous growth;
- investment in human capital;
- overlapping generations;
This paper introduces money into an overlapping-generations model with endogenous growth. The main message of the paper is that as long as the modified golden rule is attained, the Friedman rule is optimal. The result holds regardless of the ability of the government to internalize the externality and control the level of human capital. Other results include: (i) violation of the Friedman rule for a different second-best environment wherein human capital accumulation is controlled but not physical capital accumulation and (ii) existence of a negative relationship between money growth rate and the economy’s endogenous growth rate.