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Does commodity money eliminate the indeterminacy of equilibria?

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  • Ruilin Zhou

Abstract

Previous studies have shown that a random-matching model with divisible at money and without constraint on agents' money inventories possesses a continuum of stationary single-price equilibria. Wallace [7] conjectured that the indeterminacy can be eliminated by the use of commodity money, just as the elimination of the contin- uum of dynamic (non-stationary) equilibria in models such asoverlapping generation or infnite-horizon money-in-utility-function. In contrast, I and that in a similar random-matching model with dividend-yielding commodity money, a continuum of stationary single-price equilibria exists when the utility ofdividend is not too high. This result casts doubt on the conventional belief that the indeterminacy of monetary equilibrium is caused only by the nominal nature of money.

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Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-99-15.

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Date of creation: 1999
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Handle: RePEc:fip:fedhwp:wp-99-15

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Keywords: Money ; Commercial products;

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References

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  1. Wallace, Neil, 1998. "Introduction to Modeling Money and Studying Monetary Policy," Journal of Economic Theory, Elsevier, vol. 81(2), pages 223-231, August.
  2. Ruilin Zhou, 1996. "Individual and aggregate real balances in a random matching model," Staff Report 222, Federal Reserve Bank of Minneapolis.
  3. Obstfeld, Maurice & Rogoff, Kenneth, 1983. "Speculative Hyperinflations in Maximizing Models: Can We Rule Them Out?," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 675-87, August.
  4. Rubinstein, Ariel & Wolinsky, Asher, 1990. "Decentralized Trading, Strategic Behaviour and the Walrasian Outcome," Review of Economic Studies, Wiley Blackwell, vol. 57(1), pages 63-78, January.
  5. Camera, G. & Corbae, D., 1998. "Money and Price Dispersion," Working Papers 98-03, University of Iowa, Department of Economics.
  6. Edward J. Green & Ruilin Zhou, 2002. "Dynamic Monetary Equilibrium in a Random Matching Economy," Econometrica, Econometric Society, vol. 70(3), pages 929-969, May.
  7. Obstfeld, Maurice & Rogoff, Kenneth S., 1983. "Speculative Hyperinflations in Maximizing Models: Can We Rule Them Out?," Scholarly Articles 12491027, Harvard University Department of Economics.
  8. Edward J. Green & Ruilin Zhou, 1996. "A Rudimentary Random-Matching Model with Divisible Money and Prices," GE, Growth, Math methods 9606001, EconWPA, revised 25 Jul 1996.
  9. Myerson, Roger B. & Satterthwaite, Mark A., 1983. "Efficient mechanisms for bilateral trading," Journal of Economic Theory, Elsevier, vol. 29(2), pages 265-281, April.
  10. Obstfeld, Maurice & Rogoff, Kenneth, 1986. "Ruling out divergent speculative bubbles," Journal of Monetary Economics, Elsevier, vol. 17(3), pages 349-362, May.
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Citations

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Cited by:
  1. Kamiya, Kazuya & Shimizu, Takashi, 2011. "Stationary monetary equilibria with strictly increasing value functions and non-discrete money holdings distributions: An indeterminacy result," Journal of Economic Theory, Elsevier, vol. 146(5), pages 2140-2150, September.
  2. Araujo, Luis & GuimarĂ£es, Bernardo, 2011. "Equilibrium selection in a fundamental model of money," CEPR Discussion Papers 8200, C.E.P.R. Discussion Papers.
  3. Kamiya, Kazuya & Shimizu, Takashi, 2006. "Real indeterminacy of stationary equilibria in matching models with divisible money," Journal of Mathematical Economics, Elsevier, vol. 42(4-5), pages 594-617, August.
  4. Kazuya Kamiya & Takashi Shimizu, 2004. "Real Indeterminacy of Stationary Equilibria in Matching Models with Media of Exchange," CIRJE F-Series CIRJE-F-167, CIRJE, Faculty of Economics, University of Tokyo.
  5. Wallace, Neil & Zhu, Tao, 2004. "A commodity-money refinement in matching models," Journal of Economic Theory, Elsevier, vol. 117(2), pages 246-258, August.

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