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The evolution of monetary equilibrium

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  • Norman, Thomas W.L.

Abstract

The Hahn problem is that, even if a “monetary” equilibrium with valued fiat money exists in general equilibrium, a “nonmonetary” equilibrium with a zero price on money generally also exists; why should we expect the former over the latter? Here, I consider the preferences that will survive repeated trading in an exchange economy where agents compete in biological fitness. With unobservable preferences and positive assortativity in matching, evolutionarily stable preferences implement the competitive equilibrium that maximizes the sum of agents' fitnesses. In a standard Bewley–Townsend model, this implies selection of the monetary over the nonmonetary equilibrium, and also implies the survival of agents with “money in the utility function”. Trust in fiat money is only a recent development, and even today such faith is hardly universal. (Cass and Shell, 1980)

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  • Norman, Thomas W.L., 2020. "The evolution of monetary equilibrium," Games and Economic Behavior, Elsevier, vol. 122(C), pages 233-239.
    • Handle: RePEc:eee:gamebe:v:122:y:2020:i:c:p:233-239
    DOI: 10.1016/j.geb.2020.04.010
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    More about this item

    Keywords

    Money; Hahn problem; Preference evolution; Evolutionary stability; Money in the utility function;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

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