Sub-Optimality of the Friedman Rule in Townsend's Turnpike and Limited Communication Models of money: Do finite lives and initial dates matter?

Abstract

We construct an economy populated with infinitely-lived agents and show that the Friedman rule is suboptimal. We do that by showing that our economy and an overlapping generations model in which the Friedman rule is known to be suboptimal are homomorphic. We also discuss the importance of whether or not the economy has an initial date for this result.