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Monetary equilibrium with decentralized trade and learning

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

Abstract

This paper analyzes the stability of monetary regimes in an economy where fiat money isendogenously created by the government, information about its value is imperfect, and learningis decentralized. We show that monetary stability depends crucially on the speed of informationtransmission in the economy. Our model generates a dynamic on the acceptability of fiat moneythat resembles historical accounts of the rise and eventual collapse of overissued paper money.It also provides an explanation of the fact that, despite its obvious advantages, the widespreaduse of fiat money is only a recent development.

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Bibliographic Info

Paper provided by Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil) in its series Textos para discussão with number 222.

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Date of creation: 25 Jun 2010
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Handle: RePEc:fgv:eesptd:222

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  1. Andrei Shevchenko & Luis Araujo, 2004. "Prices, Information and Learning," 2004 Meeting Papers 118, Society for Economic Dynamics.
  2. Banks, Jeffrey S & Sundaram, Rangarajan K, 1992. "Denumerable-Armed Bandits," Econometrica, Econometric Society, vol. 60(5), pages 1071-96, September.
  3. Friedman, Milton & Schwartz, Anna J., 1986. "Has government any role in money?," Journal of Monetary Economics, Elsevier, vol. 17(1), pages 37-62, January.
  4. Dutta, Prajit K. & Majumdar, Mukul K. & Sundaram, Rangarajan K., 1994. "Parametric continuity in dynamic programming problems," Journal of Economic Dynamics and Control, Elsevier, vol. 18(6), pages 1069-1092, November.
  5. King, Robert G., 1983. "On the economics of private money," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 127-158.
  6. Katzman, Brett & Kennan, John & Wallace, Neil, 2003. "Output and price level effects of monetary uncertainty in a matching model," Journal of Economic Theory, Elsevier, vol. 108(2), pages 217-255, February.
  7. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-54, August.
  8. Ritter, Joseph A, 1995. "The Transition from Barter to Fiat Money," American Economic Review, American Economic Association, vol. 85(1), pages 134-49, March.
  9. Wolinsky, Asher, 1990. "Information Revelation in a Market with Pairwise Meetings," Econometrica, Econometric Society, vol. 58(1), pages 1-23, January.
  10. Araujo, Luis & Shevchenko, Andrei, 2006. "Price dispersion, information and learning," Journal of Monetary Economics, Elsevier, vol. 53(6), pages 1197-1223, September.
  11. Kiyotaki, Nobuhiro & Wright, Randall, 1993. "A Search-Theoretic Approach to Monetary Economics," American Economic Review, American Economic Association, vol. 83(1), pages 63-77, March.
  12. Wallace, Neil, 1997. "Short-Run and Long-Run Effects of Changes in Money in a Random-Matching Model," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1293-1307, December.
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Cited by:
  1. Elena Pastorino, 2004. "Optimal Job Design and Career Dynamics in the Presence of Uncertainty," Econometric Society 2004 North American Summer Meetings 292, Econometric Society.
  2. Antoine Martin & Stacey L. Schreft, 2003. "Currency competition : a partial vindication of Hayek," Research Working Paper RWP 03-04, Federal Reserve Bank of Kansas City.

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