On money as a medium of exchange when goods vary by supply and demand
AbstractModels of the exchange process based on search theory can be used to analyze the features of objects that make them more or less likely to emerge as ``money'' in equilibrium. These models illustrate the trade--off between endogenous acceptability (an equilibrium property) and intrinsic characteristics of goods, such as storability, recognizability, etc. In this paper, we look at how the relative supply and demand for various goods affect their likelihood of becoming money. Intuitively, goods in high demand and/or low supply are more likely to appear as commodity money, subject to the qualification that which object ends up circulating as a medium of exchange depends at least partly on convention. Welfare properties are discussed.
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Bibliographic InfoPaper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 160.
Date of creation: Feb 1996
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Medium of exchange; search theory; supply; demand;
Other versions of this item:
- Xavier Cuadras-Morato & Randall Wright, . "On Money as a Medium of Exchange When Goods Vary by Supply and Demand," CARESS Working Papres 97-1, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- E00 - Macroeconomics and Monetary Economics - - General - - - General
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
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