University of Isfahan International Economics Studies 2008-9643 51 1 2021 01 01 Is Friedman Still Right? 15 24 25754 10.22108/ies.2021.126465.1098 EN Malihe Hadadmoghadam Assistant Professor, National Institute for Population Research (NIPR), Tehran, Iran Jafar Ebadi Associate Professor, Faculty of Economics, University of Tehran, Tehran, Iran Mohammad Hossein Rahmati Associate Professor, Graduate School of Management and Economics, Sharif University of Technology, Tehran, Iran Journal Article 2020 12 15 This paper has investigated the role of search and matching frictions in a monetary model and examined if the Friedman rule, advocating a rate of deflation equal to real interest rate, is still right. We defined a dynamic programming problem in which money is situated in the model by cash in advance constraint, and used a numerical method (value function iteration method) to solve the pre-mentioned problem. Also, in this paper, the concept of the homogenous agent is substituted by the heterogeneous agent, and there are two groups of agents, namely unemployed and employed agents. The difference between the two divergence groups is indicated by different constraints in this study. According to our model, the Friedman rule will not maximize the aggregate welfare of the assumed society with this new friction. It is noteworthy that the parameters of the numerical model have been derived from the United States economy and the essay is theoretical. The results can be applied in different economies with their specific parameters. Also, the study offers some implications to central banks.<br /> <strong>JEL Classification: </strong>E52, E24, C78. https://ies.ui.ac.ir/article_25754_1c0e894ff31f3fcfb04edbec8b3a3d79.pdf