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Fiat Money and the Efficient Financing of the Float, Production and Consumption. Part I: The Float

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Abstract

The basic distinction in the optimization conditions between the general equilibrium model of a T period exchange economy and a strategic market game process model is between a set of equations homogeneous of order zero and a set of nonhomogeneous equations. The latter have an amount M of outside or fiat money added to the system. If there is an outside bank willing to lend or accept deposits at an interest rate rho > 0 at the end of time T the initial amount of money M will have been consumed in interest payments to the outside bank. The price level is fully determined and in an economy where all assets are traded, the float is financed efficiently, otherwise there is a price wedge between buying and selling prices.

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File URL: http://cowles.econ.yale.edu/P/cd/d12a/d1202.pdf
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Bibliographic Info

Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1202.

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Length: 13 pages
Date of creation: Nov 1998
Date of revision:
Handle: RePEc:cwl:cwldpp:1202

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Keywords: Fiat money; float; strategic market games;

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