Why is there money? Endogenous derivation of `money' as the most liquid asset: a class of examples
AbstractThe monetary character of trade, use of a common medium of exchange, is shown to be an outcome of an economic general equilibrium. Monetary structure can be derived from price theory in a modified Arrow-Debreu model. Two constructs are added: transaction costs and market segmentation in trading posts (with a separate budget constraint at each transaction). Commodity money arises endogenously as the most liquid (lowest transaction cost) asset. Government-issued fiat money has a positive equilibrium value from its acceptability for tax payments. Scale economies in transaction cost account for uniqueness of the (fiat or commodity) money in equilibrium. Copyright Springer-Verlag Berlin Heidelberg 2003
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Springer in its journal Economic Theory.
Volume (Year): 21 (2003)
Issue (Month): 2 (03)
Contact details of provider:
Web page: http://link.springer.de/link/service/journals/00199/index.htm
Find related papers by JEL classification:
- JEL - Labor and Demographic Economics - - - - -
- Cla - Mathematical and Quantitative Methods - - - - -
- Num - Economic History - - - - -
- E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
- D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Rajeev, Meenakshi, 2012. "Search cost, trading strategies and optimal market structure," Economic Modelling, Elsevier, vol. 29(5), pages 1757-1765.
- Zeira, Joseph, 2005. "Money and the Size of Transactions," CEPR Discussion Papers 5010, C.E.P.R. Discussion Papers.
- Michael B. Devereux & Shouyong Shi, 2008.
tecipa-315, University of Toronto, Department of Economics.
- Michael B. Devereux & Shouyong Shi, 2008. "Vehicle currency," Globalization and Monetary Policy Institute Working Paper 10, Federal Reserve Bank of Dallas.
- Dror Goldberg, 2012. "The tax-foundation theory of fiat money," Economic Theory, Springer, vol. 50(2), pages 489-497, June.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn) or (Christopher F Baum).
If references are entirely missing, you can add them using this form.