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lec05_02 - ECON 4721H Money and Banking Lecture 05_02...

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Unformatted text preview: ECON 4721H Money and Banking Lecture 05_02 Satoshi Tanaka University of Minnesota October, 2011 Satoshi Tanaka ECON 4721H Money and Banking Lecture 05_02 Theory of Money II Money is Memory Satoshi Tanaka ECON 4721H Money and Banking Lecture 05_02 Questions Why do you have money? It's because you worked for your part-time job. Why does Satoshi have money? It's because he worked as an instructor. Satoshi Tanaka ECON 4721H Money and Banking Lecture 05_02 Today's Key Point Money tracks people's production history. Holding money means you have produced something valuable in the past. Today, we will focus on this record-keeping property of money. The discussion is based on Kocherlakota (1998) Satoshi Tanaka ECON 4721H Money and Banking Lecture 05_02 Introducing Memory 1 OLG model with Money 2 OLG model with Memory Strategy here: I will show that the allocation in monetary equilibrium can be also achieved in an equilibrium with memory. Satoshi Tanaka ECON 4721H Money and Banking Lecture 05_02 Memory De nition (Memory) Memory is a public informational technology which records a set of information, { Ω t } ∞ t = 1 , where 1 The information, Ω t , contains the whole history of trades at period t. (Who gave how much of good to whom.) 2 All the individuals who live in period t + 1 can access to Ω 1 , Ω 2 , . . . , Ω t . Satoshi Tanaka ECON 4721H Money and Banking Lecture 05_02 Overlapping Generations Model People live for two period, young period and old period, and then die. The economy begins in period 1. There are N initial old individuals at the beginning of period 1. In each period t ≥ 1, N individuals are born....
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