Inflation and Welfare in an OLG Economy with a Privately Provided Public Good
24 Pages Posted: 7 Jul 2001
Date Written: January 2001
In this paper we study the welfare effects of monetary policy in a simple overlapping generation economy in which agents voluntarily contribute to a public good. Inflation has two effects at equilibrium: it increases voluntary contributions and it misallocates private consumption across time. We show that the aggregate effect is welfare-improving for not too large inflation rates. Moreover, there exists an optimal inflation rate.
Keywords: Optimal inflation, public goods, voluntary contributions
JEL Classification: H41, E52, D91
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