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Information Disclosure and Exchange Media

  • David Andolfatto

    (Federal Reserve Bank of St. Louis)

  • Fernando Martin

    (Federal Reserve Bank of St. Louis)

When commitment is lacking, intertemporal trade is facilitated with the use of exchange media--interpreted broadly to include monetary and collateral assets. We study the properties of a model commonly used to motivate monetary exchange, extended to include a physical asset whose expected short-run return is subject to a news shock, but whose expected long-run return is stable. The nondisclosure of news enhances the asset's property as an exchange medium, and generally improves social welfare. When a nondisclosure policy is infeasible, the framework admits a role for government debt, including fiat money. When lump-sum taxation is not permitted, fiat money may still improve welfare--but only if its circulation is supported by a cash-in-advance constraint. (Copyright: Elsevier)

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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 16 (2013)
Issue (Month): 3 (July)
Pages: 527-539

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Handle: RePEc:red:issued:11-139
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  1. Narayana R. Kocherlakota, 1996. "Money is memory," Staff Report 218, Federal Reserve Bank of Minneapolis.
  2. Kaplan, T.R., 2000. "Why Banks Should Keep Secrets," Discussion Papers 0014, Exeter University, Department of Economics.
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