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TEMPTATION AND SELF-CONTROL IN A MONETARY ECONOMY

Published online by Cambridge University Press:  30 August 2016

Ryoji Hiraguchi
Ryoji Hiraguchi*
Affiliation:
Chiba University
*
Address correspondence to: Ryoji Hiraguchi, Faculty of Law and Economics, Chiba University. 1-33, Yayoi-cho, Inage-ku, Chiba, Japan; e-mail: ryojih@chiba-u.jp.
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Abstract

We construct a microfounded model of money with Gul–Pesendorfer preferences. In each period, agents are tempted to spend all their money by the end of the period, and they suffer from the forgone utility that could have been obtained by adopting the tempting choice. We find that the Friedman rule may not be optimal. A positive nominal interest rate improves welfare because it reduces the real money balances and renders the temptation less attractive. The welfare gained by deviating from the rule is equivalent to 0.67% of consumption.

Keywords

TemptationSearchFriedman Rule
Type
Articles
Information
Macroeconomic Dynamics , Volume 22 , Issue 4 , June 2018 , pp. 1076 - 1095
Copyright
Copyright © Cambridge University Press 2016 

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Footnotes

This research is financially supported by Grant-in-Aid for Specially Promoted Research (No. 23000001). We thank Takashi Shimizu and Ryoichi Imai for their very valuable comments. We also thank the seminar participants at Osaka University. We thank two anonymous referees for their valuable comments.

References

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