The optimal price of money

The optimal inflation tax is computed in monetary models where money is costly to supply. The models are simple general equilibrium models with money in the utility function or a transactions technology. The inflation tax is a means of raising taxes to finance exogenous government expenditures. The alternative means of revenue are also distortionary. The main point of this article is to show that the robustness of the optimality of the Friedman rule, of a zero nominal interest rate, resides in the assumption that money is produced at zero cost.Money ; Interest rates ; Inflation (Finance)

The optimal inflation tax

We determine the second best rule for the inflation tax in monetary general equilibrium models where money is dominated in rate of return. The results in the literature are ambiguous and inconsistent across different monetary environments. We compare the derived optimal inflation tax solutions across the different environments and find that Friedman's policy recommendation of a zero nominal interest rate is the right one.Inflation (Finance) ; Taxation

A stable money demand: Looking for the right monetary aggregate

A money demand relationship with M1 as the monetary aggregate holds very well until the mid-1980s but not well after that. This could be because the demand for money is not a stable relationship. The authors' conclusion is that the measure of money is not a stable measure. Technological innovation and changes in regulatory practices in the past two decades have made other monetary aggregates as liquid as M1. Once an appropriately adjusted measure of money is taken into consideration, the stability of money demand is recovered.Money ; Money supply

The optimal mix of taxes on money, consumption and income

In this paper we determine the optimal combination of taxes on money, consumption and income in transaction technology models. We show that the optimal policy does not tax money, regardless of whether the government can use the income tax, the consumption tax, or the two taxes jointly. These results are at odds with recent literature. We argue that the reason for this divergence is an inappropriate specification of the transaction technology adopted in the literature. JEL Classification: E31, E41, E58, E62

The optimal mix of taxes on money, consumption and income

We determine the optimal combination of taxes on money, consumption and income in transactions technology models where exogenous government expenditures must be financed with distortionary taxes. We show that the optimal policy does not tax money, regardless of whether the government can use as alternative fiscal instruments an income tax, a consumption tax, or the two taxes jointly. These results are at odds with recent literature. We argue that the reason for this divergence is an inappropriate specification of the transactions technology adopted in the literature.Consumption (Economics) ; Income ; Taxation

Monetary policy with single instrument feedback rules

We consider a standard cash in advance monetary model with flexible prices or prices set in advance and show that there are interest rate or money supply rules such that equilibria are unique. The existence of these single instrument rules depends on whether the economy has an infinite horizon or an arbitrarily large but finite horizon.Monetary policy ; Prices