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Money in a theory of exchange

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  • Daniel L. Thornton

Abstract

Major problems in monetary economics are to: introduce money into the economy in a way that explains how money arises endogenously; explain why money is preferred to other methods of exchange; and identify the welfare gains from using money. In this paper, Daniel L. Thornton develops a framework for assessing money's role in the economy and identifies the welfare gains associated with its use. In Thornton's framework, money is welfare enhancing not only because it reduces the resources necessary for exchange-thereby increasing both consumption and leisure-but, money further increases welfare by promoting further trade and greater specialization. ; Thornton then discusses the implications of his analysis for several important issues in monetary theory: the existence of fiat money; the role of money and credit in exchange; the asset demand for money; the buffer-stock notion of money demand; the welfare benefits of money; and the welfare costs of inflation.

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Bibliographic Info

Article provided by Federal Reserve Bank of St. Louis in its journal Review.

Volume (Year): (2000)
Issue (Month): Jan ()
Pages: 35-60

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Handle: RePEc:fip:fedlrv:y:2000:i:jan:p:35-60:n:v.82no.1

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Related research

Keywords: Money ; Monetary theory;

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Cited by:
  1. Piet-Hein Van Eeghen, 2011. "Rethinking equilibrium conditions in macromonetary theory: A conceptually rigorous approach," Working Papers 255, Economic Research Southern Africa.
  2. Thornton, Daniel L., 2014. "Monetary policy: Why money matters (and interest rates don’t)," Journal of Macroeconomics, Elsevier, vol. 40(C), pages 202-213.
  3. Daniel L. Thornton, 2012. "Monetary policy: why money matters, and interest rates don’t," Working Papers 2012-020, Federal Reserve Bank of St. Louis.
  4. Daniel L. Thornton, 2003. "Monetary policy transparency: transparent about what?," Working Papers 2002-028, Federal Reserve Bank of St. Louis.

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