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Unformatted text preview: to . The government budget constraint is = T s + M s p s M s 1 p s i) Find the state and control variables and define the value function and Bellman equation. ii) Derive the Euler conditions. iii) Assume R =1. Define a stationary equilibrium for this economy and derive the inflation rate (you do not need to derive durable and non-durable consumption explicitely). Is money neutral and/or superneutral in this economy? Show and explain. Hint: Contrast the case v D s , M s p s = ln D s + M s p s and v D s , M s p s = ln D s ( ) + ln M s p s . 2. Discuss the concepts of neutrality and super-neutrality of money. 3. Discuss the different theories of money and the drawbacks associated with each of them....
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- Spring '08