This paper presents an overlapping generations model with private information, in which the use of fiat money and the rampant moral hazard incentives sustain each other. It is shown that: there is a monetary equilibrium, despite the fact that the rate of return on the non-monetary asset is significantly higher thatn the rate of economic growth in the non-monetary case; the valuation of money is not necessarily Pareto-improving, but rather can be harmful to almost all generations; an inflationary policy can improve the welfare of all generations except the initial one. (Copyright: Elsevier)
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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.
Find related papers by JEL classification: E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
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