Commodity Money Equilibrium in a Walrasian Trading Post Model: An Example
AbstractThis paper posits an example of Walrasian general competitive equilibrium in an exchange economy with commodity-pairwise trading posts and transaction costs. Budget balance is enforced for each transaction at each trading post separately. Commodity-denominated bid and ask prices at each post allow the post to cover transaction costs through the bid/ask spread. In the absence of double coincidence of wants, the lower transaction-cost commodity (with the narrowest bid/ask spread) becomes the common medium of exchange, commidty money. Selection of the monetary commodity and adoption of a monetary pattern of trad results from price-guided equilibrium without central direction, fiat, or government
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Bibliographic InfoPaper provided by Department of Economics, UC San Diego in its series University of California at San Diego, Economics Working Paper Series with number qt3267p6wj.
Date of creation: 01 Jun 2006
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Transaction cost; bid/ask spread; money; Arrow-Debreu general equilibrium;
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- Hahn, F H, 1971. "Equilibrium with Transaction Costs," Econometrica, Econometric Society, vol. 39(3), pages 417-39, May.
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