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Limited memory and the essentiality of money

  • Araújo, Luis Fernando de Oliveira
  • Camargo, Braz Ministério de

This paper investigates the relationship between memory and the essentiality of money. We consider a random matching economy with a large finite population in which commitment is not possible and memory is limited in the sense that only a fraction m E(0; 1) of the population has publicly observable histories. We show that no matter how limited memory is, there exists a social norm that achieves the first best regardless of the population size. In other words, money can fail to be essential irrespective of the amount of memory in the economy. This suggests that the emphasis on limited memory as a fundamental friction for money to be essential deserves a deeper examination.

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File URL: http://bibliotecadigital.fgv.br/dspace/bitstream/10438/6695/1/TD+221+-+Luis+Araujo%3B+Braz+Camargo.pdf
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Paper provided by Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil) in its series Textos para discussão with number 221.

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Date of creation: 25 Jun 2010
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Handle: RePEc:fgv:eesptd:221
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  1. Okuno-Fujiwara Masahiro & Postlewaite Andrew, 1995. "Social Norms and Random Matching Games," Games and Economic Behavior, Elsevier, vol. 9(1), pages 79-109, April.
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