Optimum Quantity of Money
Reference work entry
First Online:
DOI: https://doi.org/10.1057/978-1-349-95189-5_1740
Abstract
The optimum quantity of money is a normative monetary policy conclusion drawn from the long-run properties of a theoretical model. Most famously associated with Milton Friedman, the optimum calls for a zero nominal rate of interest and thus a steady state of price deflation at the long-run real rate of interest. Although this policy prescription has played a minor role in monetary policy implementation, it has had an enormous influence in monetary theory.
Keywords
Bargaining Deflation Dynamic new Keynesian models Fiat money Friedman rule Friedman, M. Hold-up problem Inflation Monetary policy Optimal taxation Optimum quantity of money Search-theoretic monetary models Seigniorage Transactions role of moneyJEL Classifications
E31 E52This is a preview of subscription content, log in to check access.
Notes
Acknowledgment
The author would like to thank Charles Carlstrom and John Hoag for their helpful comments.
Bibliography
- Bailey, M.J. 1956. The welfare costs of inflationary finance. Journal of Political Economy 64: 93–110.CrossRefGoogle Scholar
- Chari, V.V., L.J. Christiano, and P. Kehoe. 1996. Optimality of the Friedman rule in economies with distorting taxes. Journal of Monetary Economics 37: 202–223.CrossRefGoogle Scholar
- Correia, I., and P. Teles. 1996. Is the Friedman rule optimal when money is an intermediate good. Journal of Monetary Economics 38: 223–244.CrossRefGoogle Scholar
- Correia, I., and P. Teles. 1999. The optimal inflation tax. Review of Economic Dynamics 2: 325–346.CrossRefGoogle Scholar
- DeFiore, F., and P. Teles. 2003. The optimal mix of taxes on money, consumption and income. Journal of Monetary Economics 50: 871–888.CrossRefGoogle Scholar
- Diamond, P.A., and J.A. Mirrlees. 1971. Optimal taxation and public production. American Economic Review 63: 8–27.Google Scholar
- Friedman, M. 1960. A program for monetary stability. New York: Fordham University Press.Google Scholar
- Friedman, M. 1969. The optimum quantity of money and other essays. Chicago: Aldine.Google Scholar
- Guidotti, P.E., and C.A. Vegh. 1993. The optimal inflation tax when money reduces transactions costs. Journal of Monetary Economics 31: 189–205.CrossRefGoogle Scholar
- Kimbrough, K.P. 1986. The optimum quantity of money rule in the theory of public finance. Journal of Monetary Economics 18: 277–284.CrossRefGoogle Scholar
- Lagos, R., and R. Wright. 2005. A unified framework for monetary theory and policy analysis. Journal of Political Economy 46: 463–484.CrossRefGoogle Scholar
- Lucas, R.E. Jr. 2000. Inflation and welfare. Econometrica 68: 247–274.CrossRefGoogle Scholar
- Mulligan, C.B., and X. Sala-i-Martin. 1997. The optimum quantity of money: Theory and evidence. Journal of Money, Credit and Banking 29: 687–715.CrossRefGoogle Scholar
- Phelps, E.S. 1973. Inflation in the theory of public finance. Swedish Journal of Economics 75: 37–54.CrossRefGoogle Scholar
- Shi, S. 1997. A divisible search model of fiat money. Econometrica 65: 75–102.CrossRefGoogle Scholar
- Tolley, G. 1957. Providing for growth of the money supply. Journal of Political Economy 65: 465–485.CrossRefGoogle Scholar
- Woodford, M. 2003. Interest and prices. Princeton: Princeton University Press.Google Scholar
Copyright information
© Macmillan Publishers Ltd. 2018