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On Money as a Medium of Exchange

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  • Kiyotaki, Nobuhiro
  • Wright, Randall

Abstract

The authors analyze economies in which individuals specialize in consumption and production and meet randomly over time in a way that implies that trade must be bilateral and quid pro quo. Nash equilibria in trading strategies are characterized. Certain goods emerge endogenously as media of exchange, or commodity money, depending both on their intrinsic properties and on extrinsic beliefs. There are also equilibria with genuine fiat currency circulating as the general medium of exchange. The authors find that equilibria are not generally Pareto optimal and that introducing fiat currency into a commodity money economy may unambiguously improve welfare. Velocity, acceptability, and liquidity are discussed. Copyright 1989 by University of Chicago Press.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 97 (1989)
Issue (Month): 4 (August)
Pages: 927-54

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Handle: RePEc:ucp:jpolec:v:97:y:1989:i:4:p:927-54

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Heterodox money
    by Economic Logician in Economic Logic on 2011-02-14 15:20:00
  2. 仲介機能の失敗*
    by ikeda_nobuo in 池田信夫 blog on 2010-02-19 22:45:47
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  1. Advanced Monetary Theory and Policy (ECON 447)
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