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Stationarity without Degeneracy in a Model of Commodity Money

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  • de O. Cavalcanti, Ricardo
  • Puzzello, Daniela

Abstract

We develop a model of macroeconomic heterogeneity inspired by the Kiyotaki-Wright (1989) formulation of commodity money, with the addition of linear utility and idiosyncratic shocks to savings. We consider two environments. In the benchmark case, the consumer in a meeting is chosen randomly. In the auctions case, the individual holding more money can be selected to be the consumer. We show that in both environments socially optimal trading decisions (that are individually acceptable) are stationary and solve a tractable static op- timization problem. Savings decisions in the benchmark case are re- markably invariant to mean-preserving changes in the distribution of shocks. This result is overturned in the auctions case.

Suggested Citation

  • de O. Cavalcanti, Ricardo & Puzzello, Daniela, 2009. "Stationarity without Degeneracy in a Model of Commodity Money," MPRA Paper 17125, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:17125
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    References listed on IDEAS

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    5. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-954, August.
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    Cited by:

    1. Konrad Podczeck & Daniela Puzzello, 2012. "Independent random matching," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 50(1), pages 1-29, May.

    More about this item

    Keywords

    Macroeconomics with heterogeneous savings; commodity money with linear adjustments; mechanism design; auctions;

    JEL classification:

    • C00 - Mathematical and Quantitative Methods - - General - - - General
    • E00 - Macroeconomics and Monetary Economics - - General - - - General

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