Money versus memory
AbstractA well–established fact in monetary theory is that a key ingredient for the essentialityof money is its role as a form of memory. In this paper we study a notion ofmemory that includes information about an agent’s past actions and trading opportunitiesbut, in contrast to Kocherlakota (1998), does not include information aboutthe past actions and trading opportunities of an agent’s past partners. We first showthat the first–best can be achieved with memory even if it only includes informationabout an agent’s very recent past. Thus, money can fail to be essential even if memoryis minimal. We then establish, more interestingly, that if information about tradingopportunities is not part of an agent’s record, then money can be better than memory.This shows that the societal benefit of money lies not only on being a record of pastactions, but also on being a record of past trading opportunities, a fact that has beenoverlooked by the monetary literature.
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Bibliographic InfoPaper provided by Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil) in its series Textos para discussão with number 224.
Date of creation: 25 Jun 2010
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-07-10 (All new papers)
- NEP-CBA-2010-07-10 (Central Banking)
- NEP-CTA-2010-07-10 (Contract Theory & Applications)
- NEP-DGE-2010-07-10 (Dynamic General Equilibrium)
- NEP-HPE-2010-07-10 (History & Philosophy of Economics)
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