Inflation and Welfare
University of Chicago
Sidrauski model with money-in-utility and McCallum-Goodfriend transactions technology model; extensions include elastic labor supply with distortionary income taxation and government consumption
Figure 5
Friedman rule: deflation at rate of real interest, nominal interest rate equals zero
Friedman rule (r=0) is identified as optimal monetary policy throughout the paper; welfare cost is zero at this point