This paper considers the desirability of the observed tendency of central banks to adjust interest rates only gradually in response to changes in economic conditions. It shows, in the context of a simple model of optimizing private-sector behavior, that such inertial behavior on the part of the...

The authors provides a rigorous analysis of Milton Friedman's parable of the 'helicopter' drop of money - a permanent/irreversible increase in the nominal stock of fiat base money which respects the intertemporal budget constraint of the consolidated Central Bank and Treasury - the State....