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The Emergence Of Money: A Dynamic Analysis

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  • Iacopetta, Maurizio

Abstract

This paper studies the role of liquidity in triggering the emergence of money in a Kiyotaki-Wright economy. A novel method computes the dynamic Nash equilibria of the economy by setting up an iteration of the agents' profile of (pure) strategies and of the distribution of commodities across agents. The analysis shows that the evolving state of liquidity can spark the acceptance of a high-cost-storage commodity as money or cause the disappearance of a commodity money. It also reveals the existence of multiple dynamic equilibria with pure strategies. Several simulations clarify how history and the coordination of beliefs matter for the selection of a particular equilibrium.

Suggested Citation

  • Iacopetta, Maurizio, 2019. "The Emergence Of Money: A Dynamic Analysis," Macroeconomic Dynamics, Cambridge University Press, vol. 23(7), pages 2573-2596, October.
  • Handle: RePEc:cup:macdyn:v:23:y:2019:i:07:p:2573-2596_00
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    Cited by:

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