A monetarist model of inflation (Q1820662): Difference between revisions

We consider an overlapping generations model with new money introduced via autocorrelated lump-sum transfers. Hence, the own rate of return on money is fixed, implying that (dynamic) neutrality may fail due to inflation tax effects. We derive a condition, less restrictive than serial independence of monetary growth rates, which is necessary as well as sufficient for neutrality. We determine whether various properties of the joint distribution of monetary growth rates and inflation rates which are weaker than neutrality - for example, positive correlation between the two - can be expected to obtain in general settings.