Efficient Monetary Equilibrium: An Overlapping Generations Model with Nonstationary Monetary Policies

Abstract

This paper is concerned with the characterization of public debt policies that are consistent with competitive equilibria in which (i) money is positively priced, and (ii) intertemporal allocation is efficient. The framework used is an overlapping generations model with many goods, agents with two-period lifetimes, and nonstationary tax-transfer policies. We show, under some regularity conditions on such policies that the size of the public debt not growing "too fast" is both necessary and sufficient for the existence of an efficient monetary equilibrium. Journal of Economic Literature Classification Numbers: 021, 311, 321.