Implementing the Friedman Rule

36 Pages Posted: 8 Mar 2002 Last revised: 10 Aug 2022

See all articles by Peter N. Ireland

Peter N. Ireland

Boston College - Department of Economics

Date Written: March 2002

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 place restrictions mainly on 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.

Suggested Citation

Ireland, Peter N., Implementing the Friedman Rule (March 2002). NBER Working Paper No. w8821, Available at SSRN: https://ssrn.com/abstract=303544

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