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Another Example in which Lump-sum Money Creation is Beneficial

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  • Deviatov Alexei

    (Penn State University)

  • Wallace Neil

    (Penn State University)

Abstract

A probabilistic version of lump-sum money creation is studied in a random matching model with indivisible money and individual holdings bounded at 2 units. Sufficient conditions are obtained for an ex ante optimum from among implementable steady states to involve lump-sum creation of money. The role of that creation is to change the distribution of money holdings to permit more trade to occur. Beneficial money creation is impossible in a version with a 1 unit upper bound on individual holdings, but can almost certainly happen for all higher bounds.

Suggested Citation

  • Deviatov Alexei & Wallace Neil, 2001. "Another Example in which Lump-sum Money Creation is Beneficial," The B.E. Journal of Macroeconomics, De Gruyter, vol. 1(1), pages 1-22, February.
    • Handle: RePEc:bpj:bejmac:v:advances.1:y:2001:i:1:n:1
    DOI: 10.2202/1534-6013.1001
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