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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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Bibliographic Info

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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  1. Obstfeld, Maurice & Rogoff, Kenneth, 1986. "Ruling out divergent speculative bubbles," Journal of Monetary Economics, Elsevier, vol. 17(3), pages 349-362, May.
  2. Maurice Obstfeld & Kenneth Rogoff, 1983. "Speculative Hyperinflations in Maximizing Models: Can We Rule Them Out?," NBER Working Papers 0855, National Bureau of Economic Research, Inc.
  3. Wallace, Neil, 1998. "Introduction to Modeling Money and Studying Monetary Policy," Journal of Economic Theory, Elsevier, vol. 81(2), pages 223-231, August.
  4. Zhou, Ruilin, 1999. "Individual and Aggregate Real Balances in a Random-Matching Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 1009-38, November.
  5. Roger B. Myerson & Mark A. Satterthwaite, 1981. "Efficient Mechanisms for Bilateral Trading," Discussion Papers 469S, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Arial Rubinstein & Asher Wolinsky, 1990. "Decentralized Trading, Strategic Behaviour and the Walrasian Outcome," Levine's Working Paper Archive 622, David K. Levine.
  7. Camera, G. & Corbae, D., 1998. "Money and Price Dispersion," Working Papers 98-03, University of Iowa, Department of Economics.
  8. Edward J. Green & Ruilin Zhou, 2000. "Dynamic monetary equilibrium in a random-matching economy," Working Paper Series WP-00-1, Federal Reserve Bank of Chicago.
  9. 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.
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Cited by:
  1. Wallace, Neil & Zhu, Tao, 2004. "A commodity-money refinement in matching models," Journal of Economic Theory, Elsevier, vol. 117(2), pages 246-258, August.
  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, 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.
  4. 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.

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