Working Paper
Implementing the Friedman rule
Abstract: In cash-in-advance models, necessary and sufficient conditions for the existence of an equilibrium with zero nominal interest rates and Pareto-optimal allocations restrict only the very long-run, or asymptotic, behavior of the money supply. When these asymptotic conditions are satisfied, they leave the central bank with a great deal of flexibility to manage the money supply over any finite horizon. But what happens when these asymptotic conditions fail to hold? This paper shows that the central bank can still implement the Friedman rule if its actions are appropriately constrained in the short run.
Keywords: Monetary policy;
https://doi.org/10.26509/frbc-wp-200012
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Provider: Federal Reserve Bank of Cleveland
Part of Series: Working Papers (Old Series)
Publication Date: 2000
Number: 0012