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Money, Payments, and Liquidity$
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Ed Nosal and Guillaume Rocheteau

Print publication date: 2011

Print ISBN-13: 9780262016285

Published to MIT Press Scholarship Online: August 2013

DOI: 10.7551/mitpress/9780262016285.001.0001

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The Optimum Quantity of Money

The Optimum Quantity of Money

(p.126) (p.127) 6 The Optimum Quantity of Money
Money, Payments, and Liquidity

Ed Nosal

Guillaume Rocheteau

The MIT Press

This chapter takes the strategy of constructing economic environments where the presence of fiat money is essential and the societal benefits of monetary exchange are clearly laid out. Through this strategy, new insights for monetary policy are sought. Aside from considering a one-time change in money supply, the chapter also assumes that monetary policy takes the form of a constant money growth rate. The characteristics of the Freidman rule are addressed, and the model itself is evaluated for its feasibility and optimality. The chapter aims to examine Friedman’s doctrine of “optimum quantity of money” and determine if a deviation from the Friedman rule may in actuality be optimal.

Keywords:   constructing economic environments, monetary exchange, fiat money, monetary policy, money growth rate, Friedman rule, Milton Friedman, monetary theory, optimum quantity of money

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