We thank two anonymous referees, editor Paul Evans, Jean-Pascal Bénassy, Engelbert Dockner, Gabriel Fagan, Christian Groth, Jakub Growiec, Miguel León-Ledesma, Paul Levine, Masao Nakagawa, Xavier Ragot, Adolfo Sachsida, Oreste Tristani, Chris Tsoukis, Philippe Weil, Peter Welz, and Alpo Willman for comments as well as seminar participants at Surrey, the ECB, and at the Bank of Korea.
Anticipation of Future Consumption: A Monetary Perspective
Version of Record online: 17 MAR 2013
© 2013 The Ohio State University
Journal of Money, Credit and Banking
Volume 45, Issue 2-3, pages 423–447, March-April 2013
How to Cite
FARIA, J. R. and MCADAM, P. (2013), Anticipation of Future Consumption: A Monetary Perspective. Journal of Money, Credit and Banking, 45: 423–447. doi: 10.1111/jmcb.12008
- Issue online: 17 MAR 2013
- Version of Record online: 17 MAR 2013
- Received December 28, 2011; and accepted in revised form May 16, 2012.
- consumption behavior;
- money demand;
- money and growth;
- Friedman rule;
We adapt the monetary model (Sidrauski 1967) to study the hypothesis of anticipation of future consumption. We assume that anticipation of future consumption affects an agent’s instantaneous utility and that all effects of future consumption on current well-being are captured by the stock of future consumption. Monetary policy effectiveness is thereby reduced and a zero nominal lower interest rate (and thus the Friedman rule) is destabilizing. Given this, we can derive a “just stable” equilibrium nominal interest rate with matching definitions for inflation and monetary growth. We demonstrate that these implied lower bounds match their historical analogues well.