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The Mechanism-Design Approach to Monetary Theory

In: Handbook of Monetary Economics

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  • Wallace, Neil
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    Abstract

    The mechanism-design approach to monetary theory is the search for fruitful settings in which money is necessary for the achievement of some desirable allocations. Fruitfulness means that the settings provide insights about puzzling observations and policy questions. Settings with three frictions are considered: imperfect monitoring, costly connections among people, and imperfect recognizability of assets. An illustrative model with those frictions is used to explain as an optimum the following features of actual economies: currency is a uniform object, currency is (usually) dominated in rate of return, some transactions are accomplished using currency and others are accomplished in other ways.

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    This chapter was published in:

  • Benjamin M. Friedman & Michael Woodford (ed.), 2010. "Handbook of Monetary Economics," Handbook of Monetary Economics, Elsevier, edition 1, volume 3, number 3, January.
    This item is provided by Elsevier in its series Handbook of Monetary Economics with number 3-01.

    Handle: RePEc:eee:monchp:3-01

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    Web page: http://www.elsevier.com/wps/find/bookseriesdescription.cws_home/BS_HE/description

    Related research

    Keywords: Money; Frictions; Inside-money; Mechanism-design; Monetary and Fiscal policy; Outside-money;

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    Cited by:
    1. Alexei Deviatov & Neil Wallace, 2010. "Interest on Cash with Endogenous Fiscal Policy," Working Papers 2010-012, Becker Friedman Institute for Research In Economics.
    2. Hu, Tai-Wei & Rocheteau, Guillaume, 2013. "On the coexistence of money and higher-return assets and its social role," Journal of Economic Theory, Elsevier, vol. 148(6), pages 2520-2560.

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