An optimal monetary policy in an aggregate neoclassical model of economic growth

John Z Drabicki, Akira Takayama

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Abstract

This paper shows that the usual Ramsey-Cass-Koopmans optimal-growth theory is applicable to decentralized monetary economies and illustrates, with a simple model, how optimal growth can be achieved via a simple monetary policy. Securities and the endogeneity aspect of the money supply are explicitly introduced. This paper shows that the steady state under optimal growth is a saddle point, that the dynamic behavior of the capital-labor ratio and real per capita consumption is identical to that found in the usual literature in which money is not introduced, and that the optimal monetary policy is "counter-cyclical.".

Original languageEnglish (US)
Pages (from-to)53-74
Number of pages22
JournalJournal of Macroeconomics
Volume5
Issue number1
DOIs
Publication statusPublished - 1983

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ASJC Scopus subject areas

  • Economics and Econometrics

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