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A Note on the Essentiality of Money under Limited Memory

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  • Thomas Wiseman

    (University of Texas at Austin)

Abstract

I use a simplified version of Trejos and Wright's (1995) random matching environment to make a point about when fiat money is essential -- that is, when the set of equilibrium outcomes is strictly larger with money than without. Under two natural forms of limited memory, money becomes essential when small, idiosyncratic shocks to production costs are introduced. Monetary equilibria approach full efficiency in the limit as agents become patient, while without money no trade is possible in equilibrium for any discount factor. (Copyright: Elsevier)

Suggested Citation

  • Thomas Wiseman, 2015. "A Note on the Essentiality of Money under Limited Memory," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(4), pages 881-893, October.
    • Handle: RePEc:red:issued:15-48
    DOI: 10.1016/j.red.2015.09.001
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    More about this item

    Keywords

    Fiat money; Random matching; Dynamic games; Memory; Monitoring;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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