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On the coexistence of money and higher-return assets and its social role

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  • Guillaume Rocheteau

Abstract

This paper adopts mechanism design to tackle the central issue in monetary theory, namely, the coexistence of money and higher-return assets. I describe an economy with pairwise meetings, where fiat money and risk-free capital compete as means of payment. Whenever fiat money has an essential role, any constrained-efficient allocation is such that capital commands a higher rate of return than fiat money.

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Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 1104.

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Date of creation: 2011
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Handle: RePEc:fip:fedcwp:1104

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Keywords: Monetary theory;

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Cited by:
  1. Hu, Tai-Wei & Rocheteau, Guillaume, 2013. "On the coexistence of money and higher-return assets and its social role," Journal of Economic Theory, Elsevier, vol. 148(6), pages 2520-2560.

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