Abstract:This paper studies the consequences of labor-market frictions for the real effects of steady inflation when cash is required for households' consumption purchases and firms' wage payments. Money growth may generate a positive real effect by encouraging vacancy creation and raising job matches. This may result in a positive optimal rate of inflation, particularly in an economy with moderate money injections to firms and with nonnegligible labor-market frictions in which wage bargains are not efficient. This main finding holds for a wide range of money injection schemes, with alternative cash constraints, and in a second-best world with preexisting distortionary taxes.

Keywords: D90;E41;O42;cash constraints; nonsuperneutrality of money; the Friedman rule; labor-market frictions

(原文刊于Journal of Money, Credit and Banking, December 2013.(SSCI))