- An overlapping generations model for monetary policy analysis
- Samuel Huber, Jaehong Kim
- European Economic Review 125, 103429
- #002570 20200627 (published) Views:556
- We integrate an overlapping generations structure into the standard Lagos and Wright (2005) framework and show that mild inflation can be welfare-improving. The reason behind this result is that inflation induces young agents to reduce their savings and to increase their consumption, which overpowers the utility loss of old agents. However, the beneficial effect disappears for higher inflation rates, such that the optimal inflation rate is one at an intermediate level.
- JEL-Codes: D90; E31; E41; E50
- Keywords: Overlapping generations; Monetary theory; Friedman rule