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Debt enforcement and the value of money

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  • Rojas Breu, Mariana

Abstract

This paper presents a framework in which fiat money has value in equilibrium even though a risk-free higher-return asset can be equally used as a medium of exchange. In a limited-commitment environment, agents may prefer to borrow a low-return asset because that results in a larger borrowing capacity. Thus, a monetary equilibrium in which money is dominated in rate of return exists.

Suggested Citation

  • Rojas Breu, Mariana, 2017. "Debt enforcement and the value of money," Journal of Economic Theory, Elsevier, vol. 168(C), pages 237-251.
  • Handle: RePEc:eee:jetheo:v:168:y:2017:i:c:p:237-251
    DOI: 10.1016/j.jet.2016.12.010
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    More about this item

    Keywords

    Money; Inflation; Debt enforcement;

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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