Inflation and Welfare in an OLG Economy with a Privately Provided Public Good
Sergio Currarini, Gaetano Bloise, Nicholas Kikidis
Optimal inflation,public goods,voluntary contributions
Economy and Society
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.