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Equilibrium selection in a fundamental model of money


  • Araujo, Luis
  • Guimarães, Bernardo


Fundamental models of money always exhibit autarkic equilibria where money has no value. In this paper we propose a simple procedure to select among equilibria in such models. Our procedure unveils a natural mapping between equilibrium behavior and the primitives of the economy, thus offering insights on the conditions under which money emerges as a medium of exchange. Overall, our results favour money over autarky, especially if agents are patient.

Suggested Citation

  • Araujo, Luis & Guimarães, Bernardo, 2011. "Equilibrium selection in a fundamental model of money," CEPR Discussion Papers 8200, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:8200

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    References listed on IDEAS

    1. David Frankel & Ady Pauzner, 2000. "Resolving Indeterminacy in Dynamic Settings: The Role of Shocks," The Quarterly Journal of Economics, Oxford University Press, vol. 115(1), pages 285-304.
    2. Frankel, David M. & Morris, Stephen & Pauzner, Ady, 2003. "Equilibrium selection in global games with strategic complementarities," Journal of Economic Theory, Elsevier, vol. 108(1), pages 1-44, January.
    3. Carlsson, Hans & van Damme, Eric, 1993. "Global Games and Equilibrium Selection," Econometrica, Econometric Society, vol. 61(5), pages 989-1018, September.
    4. Burdzy, Krzysztof & Frankel, David M & Pauzner, Ady, 2001. "Fast Equilibrium Selection by Rational Players Living in a Changing World," Econometrica, Econometric Society, vol. 69(1), pages 163-189, January.
    5. Zhou, Ruilin, 2003. "Does commodity money eliminate the indeterminacy of equilibrium?," Journal of Economic Theory, Elsevier, vol. 110(1), pages 176-190, May.
    6. Zhu, Tao, 2005. "Existence of a monetary steady state in a matching model: divisible money," Journal of Economic Theory, Elsevier, vol. 123(2), pages 135-160, August.
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    Cited by:

    1. Bernardo Guimaraes & Luis Araujo, 2012. "The effect of options on coordination," 2012 Meeting Papers 474, Society for Economic Dynamics.

    More about this item


    equilibrium selection; Money; risk-dominance; search;

    JEL classification:

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


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