Money and capital as competing media of exchange
AbstractWe construct a model where capital competes with fiat money as a medium of exchange, and we establish conditions on fundamentals under which fiat money can be both valued and socially beneficial. When the socially efficient stock of capital is too low to provide the liquidity agents need, they overaccumulate productive assets to use as media of exchange. When this is the case, there exists a monetary equilibrium that dominates the nonmonetary one in terms of welfare. Under the Friedman Rule, fiat money provides just enough liquidity so that agents choose to accumulate the same capital stock a social planner would.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 341.
Date of creation: 2004
Date of revision:
Publication status: Published in Journal of Economic Theory
Other versions of this item:
- NEP-ALL-2004-09-05 (All new papers)
- NEP-CBA-2004-09-05 (Central Banking)
- NEP-DGE-2004-09-05 (Dynamic General Equilibrium)
- NEP-MAC-2004-09-05 (Macroeconomics)
- NEP-MON-2004-09-10 (Monetary Economics)
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- On Cows and Central Tenets of Capitalism!
by paragwaknis in Musings of the Sorts on 2013-11-30 18:48:31
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