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A Coordination Approach to the Essentiality of Money

Author

Listed:
  • Luis Araujo

    (Fundacao Getulio Vargas)

  • Bernardo Guimaraes

    (Fundacao Getulio Vargas)

Abstract

The essentiality of money is commonly justified on efficiency grounds, i.e., money achieves socially desirable allocations which could not be achieved by alternative technologies of exchange. In this paper we argue that what makes money achieve such allocations is its ability to overcome coordination frictions. Intuitively, the fact that money is a permanent record of past production implies that an agent is willing to produce in exchange for money even if he believes that many of his future partners will not accept money. (Copyright: Elsevier)

Suggested Citation

  • Luis Araujo & Bernardo Guimaraes, 2017. "A Coordination Approach to the Essentiality of Money," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 24, pages 14-24, March.
  • Handle: RePEc:red:issued:15-53
    DOI: 10.1016/j.red.2016.12.002
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    File URL: http://dx.doi.org/10.1016/j.red.2016.12.002
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    References listed on IDEAS

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    More about this item

    Keywords

    Money; Credit; Beliefs; Coordination;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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