The Optimal Inflation In The Money Economy
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| Title | The Optimal Inflation In The Money Economy
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| Author | YanLong Huang, WeiZhong Chen and LiuTang Gong |
| Organization | TongJi University; Peking University |
| Email | roger.yanlong@gmail.com |
| Key Words | Money Economy；Optimal Infaltion；Optimal Rate of Interest Rate；Ramsey Optimal |
| Abstract | This paper based on the collaboration of fiscal and monetary policy builds up the Neo-Keynesian model of the sticky price and staggered wage with non-zero inflation, and analyzes the optimal inflation and interest rate in the Ramsey Optimal equilibrium. The outcomes display that the optimal inflation rate equals to zero and optimal interest rate equals to inflation rate and a ratio of real returns of capital when in the deterministic condition, then optimal inflation is a deflated ratio according to the steady state with non-zero inflation and relevant to market structure and policy difference. There is no optimal inflation without considering the interest rate policy, implies that the optimal rate of nominal interest attain the scope of zero level. Also, the analysis shows that fiscal policy aggregates the trend of inflation and inflation by using money growth rule is larger than interest rate rule, and it brings to much more indetermination in the money economy. Under the more forward-looking insight, interest rate as a tool to keep assets for people would change resource allocation, accelerate asset bubbles and aggregate unequal assignment. |
| Serial Number | WP159 |
| Time | 2012-02-14 |
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