Sub-optimality of the Friedman rule in Townsend's turnpike and stochastic relocation models of money: do finite lives and initial dates matter?

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2005-03-23
Authors
Bhattacharya, Joydeep
Haslag, Joseph
Martin, Antoine
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Economics

The Department of Economic Science was founded in 1898 to teach economic theory as a truth of industrial life, and was very much concerned with applying economics to business and industry, particularly agriculture. Between 1910 and 1967 it showed the growing influence of other social studies, such as sociology, history, and political science. Today it encompasses the majors of Agricultural Business (preparing for agricultural finance and management), Business Economics, and Economics (for advanced studies in business or economics or for careers in financing, management, insurance, etc).

History
The Department of Economic Science was founded in 1898 under the Division of Industrial Science (later College of Liberal Arts and Sciences); it became co-directed by the Division of Agriculture in 1919. In 1910 it became the Department of Economics and Political Science. In 1913 it became the Department of Applied Economics and Social Science; in 1924 it became the Department of Economics, History, and Sociology; in 1931 it became the Department of Economics and Sociology. In 1967 it became the Department of Economics, and in 2007 it became co-directed by the Colleges of Agriculture and Life Sciences, Liberal Arts and Sciences, and Business.

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1898–present

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  • Department of Economic Science (1898–1910)
  • Department of Economics and Political Science (1910-1913)
  • Department of Applied Economics and Social Science (1913–1924)
  • Department of Economics, History and Sociology (1924–1931)
  • Department of Economics and Sociology (1931–1967)

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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.

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