Thursday, December 19, 2013

Optimal Federal Reserve Policy

Everyone wants to know. So I give the answer.
Assume a reasonably democratic society which owns the hergemon fiat bank.  How much should they take as profit?

I call this the ATM fee that shoppers are willing to pay, how much ATM fee for a $100 withdrawal? I think in this case, via the miracle of imaginary modelling that shoppers will pay and voters should earnh 1.5% of GDP per year in return for their semi-monopoly fiat business. I further claim the Fed cannot do much better than this.  If it is done right, inflation could be kept to zero and the full 1.5% of GDP made available to rural, inbred, yokel Senators, who unfortunately, are not democratic. Hence this model must predicts inefficiencies with  mal-democracy.

And that is a microfounded model!

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