2021/10/16 by John Duffy, Daniela Puzzello · 1 citation
Economics, Econometrics and Finance · #Central bank #Computer science #Constant (computer programming) #Deflation #Economic Theory and Policy #Economic theories and models #Economics #Friedman rule #Keynesian economics #Market economy #Mathematical economics #Monetarism #Monetary Policy and Economic Impact #Monetary economics #Monetary policy #Money supply #Taylor rule #Welfare #Wright
paper · doi:10.1111/iere.12549
openalex publication_date 2021/10/16 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/31
Abstract We evaluate the Friedman rule for optimal monetary policy in a laboratory economy based on Lagos–Wright ( Journal of Economic Theory 145 (2010), 1508–24). We explore two implementations of Friedman's rule: one involving deflationary monetary policy and another where interest is paid on money. We compare the welfare consequences of the Friedman rule with two other policies: a constant money supply regime and a regime where the money supply grows at a constant k %. Counter to theory, we find that the Friedman rule is not welfare‐improving, performing no better than the constant money regime. By one welfare measure, the k % money growth rate regime performs best.