There Will Be Money
AbstractA common belief among monetary theorists is that monetary equilibria are tenuous due to the intrinsic uselessness of fiat money (Wallace (1978)). In this article we argue that the tenuousness of monetary equilibria vanishes as soon as one introduces a small perturbation in an otherwise standard random matching model of money. Precisely, we show that the sheer belief that fiat money may become intrinsically useful, even if only in an almost unreachable state, might be enough to rule out nonmonetary equilibria. In a large region of parameters, agents' beliefs and behavior are completely determined by fundamentals.
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Bibliographic InfoPaper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp1004.
Date of creation: Sep 2010
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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP
Fiat money; autarky; equilibrium selection;
Find related papers by JEL classification:
- E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-11-13 (All new papers)
- NEP-CBA-2010-11-13 (Central Banking)
- NEP-DGE-2010-11-13 (Dynamic General Equilibrium)
- NEP-HPE-2010-11-13 (History & Philosophy of Economics)
- NEP-MAC-2010-11-13 (Macroeconomics)
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