Sub-Optimality of the Friedman Rule in Townsend's Turnpike and Stochastic Relocation Models of Money: Do Finite Lives and Initial Dates Matter?

Joydeep Bhattacharya, Joseph Haslag and Antoine Martin

Staff General Research Papers Archive from Iowa State University, Department of Economics

Abstract: The Friedman rule, a widely studied prescription for monetary policy, is optimal in Townsend's turnpike model of money; it is not so in the overlapping generations version of his stochastic relocation model of money. We investigate these monetary models in the light of this disparity. To that end, we create a modified version of the turnpike model that generates the same stationary monetary equilibria as does the two-period overlapping generations model with random relocation. We exploit this equivalence to explain the aforementioned disparity. We also discuss the importance of whether or not the economy has an initial date.

Keywords: Friedman rule; monetary policy; overlapping generations; turnpike (search for similar items in EconPapers)
JEL-codes: E31 E51 E58 (search for similar items in EconPapers)
Date: 2005-03-01
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Citations: View citations in EconPapers (4)

Published in Journal of Economic Dynamics and Control, May 2006, vol. 30 no. 5, pp. 879-897

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Related works:
Journal Article: Sub-optimality of the Friedman rule in Townsend's turnpike and stochastic relocation models of money: Do finite lives and initial dates matter? (2006)
Working Paper: Sub-optimality of the Friedman rule in Townsend's turnpike and stochastic relocation models of money: do finite lives and initial dates matter? (2006)
Working Paper: Sub-optimality of the Friedman rule in Townsend's turnpike and stochastic relocation models of money: do finite lives and initial dates matter? (2005)
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