The Optimal Inflation Rate in an Overlapping-Generations Economy with Land /
McCallum, Bennett T.
The Optimal Inflation Rate in an Overlapping-Generations Economy with Land / Bennett T. McCallum. - Cambridge, Mass. National Bureau of Economic Research 1986. - 1 online resource: illustrations (black and white); - NBER working paper series no. w1892 . - Working Paper Series (National Bureau of Economic Research) no. w1892. .
April 1986.
This paper is concerned with the optimal inflation rate in an overlapping-generations economy in which (i) aggregate output is constrained by a standard neoclassical production function with diminishing marginal products for both capital and labor and (ii) the transaction-facilitating services of money are represented by means of a money-in-the-utility-function specification. With monetary injections provided by lump-sum transfers, the famous Chicago Rule prescription for monetary growth is necessary for Pareto optimality but a competitive equilibrium may fail to be Pareto optimal with that rule in force because of capital over accumulation. The latter possibility does not exist, however, if the economy includes an asset that is productive and non-reproducible--i.e., if the economy is one with land. As this conclusion is independent of the monetary aspects of the model, it is argued that the possibility of capital over accumulation should not be regarded as a matter of theoretical concern, even in the absence of government debt, intergenerational altruism, and social security systems or other "social contrivances."
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The Optimal Inflation Rate in an Overlapping-Generations Economy with Land / Bennett T. McCallum. - Cambridge, Mass. National Bureau of Economic Research 1986. - 1 online resource: illustrations (black and white); - NBER working paper series no. w1892 . - Working Paper Series (National Bureau of Economic Research) no. w1892. .
April 1986.
This paper is concerned with the optimal inflation rate in an overlapping-generations economy in which (i) aggregate output is constrained by a standard neoclassical production function with diminishing marginal products for both capital and labor and (ii) the transaction-facilitating services of money are represented by means of a money-in-the-utility-function specification. With monetary injections provided by lump-sum transfers, the famous Chicago Rule prescription for monetary growth is necessary for Pareto optimality but a competitive equilibrium may fail to be Pareto optimal with that rule in force because of capital over accumulation. The latter possibility does not exist, however, if the economy includes an asset that is productive and non-reproducible--i.e., if the economy is one with land. As this conclusion is independent of the monetary aspects of the model, it is argued that the possibility of capital over accumulation should not be regarded as a matter of theoretical concern, even in the absence of government debt, intergenerational altruism, and social security systems or other "social contrivances."
System requirements: Adobe [Acrobat] Reader required for PDF files.
Mode of access: World Wide Web.