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Limited memory and the essentiality of money

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  • Araújo, Luis Fernando de Oliveira
  • Camargo, Braz Ministério de

Abstract

This paper investigates the relationship between memory and the essentiality ofmoney. We consider a random matching economy with a large finite population inwhich commitment is not possible and memory is limited in the sense that only afraction m E(0; 1) of the population has publicly observable histories. We show thatno matter how limited memory is, there exists a social norm that achieves the firstbest regardless of the population size. In other words, money can fail to be essentialirrespective of the amount of memory in the economy. This suggests that the emphasison limited memory as a fundamental friction for money to be essential deserves a deeperexamination.

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File URL: http://bibliotecadigital.fgv.br/dspace/bitstream/10438/6695/1/TD%20221%20-%20Luis%20Araujo%3b%20Braz%20Camargo.pdf
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Paper provided by Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil) in its series Textos para discussão with number 221.

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Date of creation: 25 Jun 2010
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Handle: RePEc:fgv:eesptd:221

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  1. Okuno-Fujiwara Masahiro & Postlewaite Andrew, 1995. "Social Norms and Random Matching Games," Games and Economic Behavior, Elsevier, Elsevier, vol. 9(1), pages 79-109, April.
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Cited by:
  1. Pedro Gomis‐Porqueras & Daniel Sanches, 2013. "Optimal Monetary Policy in a Model of Money and Credit," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 45(4), pages 701-730, 06.

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