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On the coexistence of money and higher-return assets and its social role

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  • Hu, Tai-Wei
  • Rocheteau, Guillaume

Abstract

This paper adopts mechanism design to investigate the coexistence of fiat money and higher-return assets. We consider an economy with pairwise meetings where fiat money and risk-free capital compete as means of payment, as in [28]. The trading mechanism in pairwise meetings is chosen among all individually rational, renegotiation-proof mechanisms to maximize societyʼs welfare. We show that in any stationary monetary equilibrium capital commands a higher rate of return than fiat money.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 148 (2013)
Issue (Month): 6 ()
Pages: 2520-2560

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Handle: RePEc:eee:jetheo:v:148:y:2013:i:6:p:2520-2560

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Web page: http://www.elsevier.com/locate/inca/622869

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Keywords: Money; Capital; Pairwise trades; Rate-of-return dominance;

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Cited by:
  1. Guillaume Rocheteau, 2011. "On the coexistence of money and higher-return assets and its social role," Working Paper 1104, Federal Reserve Bank of Cleveland.

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