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Moneyspots

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  • Ricardo Lagos

    (NYU)

Abstract

It is folklore among monetary theorists that, under laissez faire, absent ad-hoc assumptions that favor money over bonds, there do not exist equilibria in which government-issued fiat money coexists with nominal risk-free, interest-bearing government bonds with similar physical characteristics. This proposition is the basis for the strongest version of the rate-of-return-dominance puzzle. In this paper I show that if---as has been the case throughout monetary history---the physical object used as fiat money is heterogeneous in an extraneous attribute, then there exist equilibria in which money coexists with interest-bearing bonds.

Suggested Citation

  • Ricardo Lagos, 2010. "Moneyspots," 2010 Meeting Papers 498, Society for Economic Dynamics.
    • Handle: RePEc:red:sed010:498
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    References listed on IDEAS

    as
    1. Shouyong Shi, 2005. "Nominal Bonds And Interest Rates," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(2), pages 579-612, May.
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