Document Type

Working Paper

Publication Date


Working Paper Number

WP #05007, March 2005; Old working paper #12265


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.

Publication Status

Published in Journal of Economic Dynamics and Control, Vol. 30 no. 5 (May 2006): 879-897.

JEL Classification

E31, E51, E58

File Format



28 pages

Included in

Economics Commons