The optimal inflation tax

Isabel Correia*, Pedro Teles

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

26 Citations (Scopus)


We determine the second best rule for the inflation tax in monetary general equilibrium models where money is dominated in rate of return. The results in the literature are ambiguous and inconsistent across different monetary environments. We derive and compare the optimal inflation tax solutions across the different environments and find that Friedman's policy recommendation of a zero nominal interest rate is the right one. Journal of Economic Literature Classification Numbers: E31, E41, E58, E62.
Original languageEnglish
Pages (from-to)325-346
Number of pages22
JournalReview of Economic Dynamics
Issue number2
Publication statusPublished - Apr 1999


  • Friedman rule
  • Inflation tax


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