Optimal Monetary Policy in an Overlapping Generations Model with Search Theoretic Monetary Exchange

2017 ◽  
Vol 17 (2) ◽  
Author(s):  
Ryoji Hiraguchi
Keyword(s):  
Overlapping Generations ◽  
Optimal Level ◽  
Optimal Monetary Policy ◽  
Overlapping Generations Model ◽  
Friedman Rule ◽  
Lump Sum ◽  
Decentralized Markets ◽  
The Government ◽  
Decentralized Market ◽  
Specific Tax

AbstractIt is well-known that in the monetary OLG models, a deviation from the Friedman rule can improve welfare because it generates intergenerational wealth transfers; however, the rule becomes optimal if the age-specific lump-sum tax policy is available. We revisit the issue using a microfounded model of money with centralized and decentralized markets. The individuals live for two periods. The young individuals work, receive wage income and hold money and capital in the centralized market. They also trade goods in the decentralized markets either as a buyer or a seller. Only money is accepted as a means of payment in the decentralized markets. The old individuals consume all their wealth in the centralized market. The quantity in the decentralized market negatively depends on the seller’s wealth, because the marginal utility of consumption in the centralized market is diminishing, but the buyer takes it as exogenous. Therefore, the equilibrium wealth exceeds the socially optimal level under the Friedman rule. A positive nominal interest rate makes money holdings costly, reduces wealth and improves welfare, even if the government optimally uses the age-specific tax.

scholarly journals GROWTH AND KEEPING UP WITH THE JONESES

2010 ◽  
Vol 14 (S2) ◽  
pp. 176-199 ◽  
Author(s):  
Ronald Wendner
Keyword(s):  
Continuous Time ◽  
Overlapping Generations ◽  
Optimal Allocation ◽  
Overlapping Generations Model ◽  
Tax System ◽  
Balanced Growth ◽  
Lump Sum ◽  
Optimal Tax ◽  
The Impact ◽  
Total Wealth

This paper investigates the impact of the desire to keep up with the Joneses (KUJ) on economic growth and optimal tax policy in a continuous-time, overlapping-generations model with AK technology and exogenous, gradual retirement. Due to the desire to KUJ, the propensity to consume out of total wealth rises (declines), and the balanced growth rate declines (increases), when the households' individual total (physical and human) wealth is increasing (decreasing) with age. The rate of retirement determines whether or not a household's total wealth is increasing with age. If total wealth is increasing (decreasing) with age, an optimal allocation is decentralized by an intergenerationally progressive (regressive) lump-sum tax system. The desire to KUJ strengthens the intergenerational regressivity (progressivity) of the optimal tax system. The optimal tax implications of the desire to KUJ are a key finding of this paper.

scholarly journals THE BURDEN OF UNANTICIPATED INFLATION: ANALYSIS OF AN OVERLAPPING-GENERATIONS MODEL WITH PROGRESSIVE INCOME TAXATION AND STAGGERED PRICES

2011 ◽  
Vol 16 (2) ◽  
pp. 278-308 ◽  
Author(s):  
Burkhard Heer ◽  
Alfred Maußner
Keyword(s):  
Overlapping Generations ◽  
Price Model ◽  
Overlapping Generations Model ◽  
Lump Sum ◽  
Short Run ◽  
The Business Cycle ◽  
Redistributive Effects ◽  
Progressive Income Taxation ◽  
Unanticipated Inflation

Inflation is often associated with a loss for the poor in the medium and long term. We study the short-run redistributive effects of unanticipated inflation in a dynamic optimizing sticky price model of the business cycle. Agents are heterogeneous with regard to their age and their productivity. We emphasize three channels of the effect of inflation on income distribution: (1) factor prices, (2) “bracket creep,” and (3) sticky pensions. Unanticipated inflation that is caused by monetary expansion is found to reduce income inequality. In particular, an increase of the money growth rate by one standard deviation results in a 1% drop of the Gini coefficient of disposable income if extra tax revenues are transferred lump-sum to the households.

scholarly journals WEALTH INEQUALITY AND OPTIMAL MONETARY POLICY

2010 ◽  
Vol 14 (5) ◽  
pp. 629-644 ◽  
Author(s):  
Ryoji Hiraguchi
Keyword(s):  
Interest Rate ◽  
Incentive Compatibility ◽  
Wealth Inequality ◽  
Nominal Interest Rate ◽  
Optimal Monetary Policy ◽  
Friedman Rule ◽  
Initial Wealth ◽  
The Government ◽  
The One ◽  
Compatibility Constraint

We study the money-in-the-utility-function model in which agents are heterogeneous in their initial wealth. We show that the Friedman rule is not optimal even if the government uses nonlinear income taxation for redistribution. A positive nominal interest rate raises social welfare because it relaxes the incentive compatibility constraint for highly endowed agents. Although the setup is close to that of da Costa and Werning [Journal of Political Economy (2008) 116, 82–112], who investigate skill heterogeneity, the role of the nominal interest rate in this paper here differs from the one in their model.

scholarly journals DEALING WITH UNDOCUMENTED IMMIGRANTS: THE WELFARE EFFECTS OF AMNESTIES AND DEPORTATIONS

2017 ◽  
Vol 83 (4) ◽  
pp. 445-492 ◽  
Author(s):  
Joël Machado
Keyword(s):  
Undocumented Immigrants ◽  
Overlapping Generations ◽  
Migration Policy ◽  
The United States ◽  
Welfare Effects ◽  
Government Budget ◽  
Overlapping Generations Model ◽  
Wage Effects ◽  
The Government ◽  
The Impact

Abstract:The effects on agents’ welfare of two different policies dealing with undocumented immigrants, amnesties and deportations, are assessed. I develop a two-period overlapping generations model which accounts for the ex-ante production by undocumented workers and their impact on the government budget. Additional channels, such as the discrimination on the labor market and a different productivity of regularized workers are discussed. The impact of a migration policy depends on the wage effects of the legalized/deported workers and their net fiscal contribution. The calibration of the model for the United States in 2014 allows to disentangle the channels at work. Overall, the impact of the two policies on natives’ welfare is limited (between −0.1% and +0.15%). Retired agents benefit from an amnesty and are harmed by a deportation. The effect on workers is ambiguous and depends on the wage and fiscal effects in addition to the change in the returns on savings.

GROWTH-MAXIMIZING PUBLIC DEBT UNDER CHANGING DEMOGRAPHICS

2015 ◽  
Vol 20 (6) ◽  
pp. 1640-1651 ◽  
Author(s):  
Nikola Bokan ◽  
Andrew Hughes Hallett ◽  
Svend E. Hougaard Jensen
Keyword(s):  
Public Debt ◽  
Overlapping Generations ◽  
Demographic Parameters ◽  
Fiscal Policies ◽  
Overlapping Generations Model ◽  
Welfare Spending ◽  
Age Related ◽  
Balanced Budget ◽  
The Government ◽  
Changing Demographics

This paper develops an overlapping-generations model to study the growth-maximizing level of public debt under conditions of demograhic change. It is shown that the optimal debt level depends on a positive marginal productivity of public capital. In general, it also depends on the demographic parameters, but not if the government is not allowed to borrow to cover revenue shortfalls for current age-related spending. In that context, balanced budget rules are not an approriate form of fiscal rule. The implication is that a government facing demograhic change or demands for more welfare spending will have to adjust its fiscal plans to accommodate those changes, most likely downward, if growth is to be preserved. An advantage of this model is that it allows us to determine in advance the way in which fiscal policies need to adjust as demographic parameters change.

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