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On the coexistence of money and higher-return assets and its social role

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  • Hu, Tai-Wei
  • Rocheteau, Guillaume

Abstract

This paper adopts mechanism design to investigate the coexistence of fiat money and higher-return assets. We consider an economy with pairwise meetings where fiat money and risk-free capital compete as means of payment, as in [28]. The trading mechanism in pairwise meetings is chosen among all individually rational, renegotiation-proof mechanisms to maximize societyʼs welfare. We show that in any stationary monetary equilibrium capital commands a higher rate of return than fiat money.

Suggested Citation

  • Hu, Tai-Wei & Rocheteau, Guillaume, 2013. "On the coexistence of money and higher-return assets and its social role," Journal of Economic Theory, Elsevier, vol. 148(6), pages 2520-2560.
  • Handle: RePEc:eee:jetheo:v:148:y:2013:i:6:p:2520-2560
    DOI: 10.1016/j.jet.2013.09.006
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    Cited by:

    1. Geromichalos, Athanasios & Herrenbrueck, Lucas M. & Salyer, Kevin D., 2016. "A search-theoretic model of the term premium," Theoretical Economics, Econometric Society, vol. 11(3), September.
    2. Han, Han, 2015. "Over-the-Counter Markets, Intermediation, and Monetary Policy," MPRA Paper 68709, University Library of Munich, Germany.
    3. repec:red:issued:17-63 is not listed on IDEAS
    4. Jonathan Chiu & Tsz-Nga Wong, 2015. "On the Essentiality of E-Money," Staff Working Papers 15-43, Bank of Canada.
    5. repec:eee:dyncon:v:79:y:2017:i:c:p:184-200 is not listed on IDEAS
    6. Zachary Bethune & Tai-Wei Hu & Guillaume Rocheteau, 2018. "Optimal Credit Cycles," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 27, pages 231-245, January.
    7. Hu, Tai-Wei & Rocheteau, Guillaume, 2013. "On the coexistence of money and higher-return assets and its social role," Journal of Economic Theory, Elsevier, vol. 148(6), pages 2520-2560.
    8. Jung, Kuk Mo & Lee, Seungduck, 2015. "A Liquidity-Based Resolution of the Uncovered Interest Parity Puzzle," MPRA Paper 64164, University Library of Munich, Germany.
    9. Maciejczak, Mariusz, 2015. "Will the institution of coexistence be re-defined by TTIP?," GMCC-15: Seventh GMCC, November 17-20, 2015, Amsterdam, the Netherlands 211478, International Conference on Coexistence between Genetically Modified (GM) and non-GM based Agricultural Supply Chains (GMCC).
    10. Huber, Samuel & Kim, Jaehong, 2017. "On the optimal quantity of liquid bonds," Journal of Economic Dynamics and Control, Elsevier, vol. 79(C), pages 184-200.
    11. Rojas Breu, Mariana, 2017. "Debt enforcement and the value of money," Journal of Economic Theory, Elsevier, vol. 168(C), pages 237-251.

    More about this item

    Keywords

    Money; Capital; Pairwise trades; Rate-of-return dominance;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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