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Indivisible goods and fiat money

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  • Jorge Rivera C.
  • Michael Florig

Abstract

Although fiat money is useless in standard Arrow-Debreu models, in this paper we will show that this general conclusion does not hold true when goods are indivisible. In our setting, fiat money is valuable because it facilitates exchange, its price will always be positive and equilibrium allocations will change with the distribution of fiat money even though it does not directly yield utility through consumer preferences. Since a Walrasian equilibrium does not necessarily exist when goods are indivisible, a new equilibrium concept - called a rationing equilibrium - is introduced and its existence is proven under weak assumptions on the economy. A rationing equilibrium is a Walrasian equilibrium for all generic fiat money distributions.

Suggested Citation

  • Jorge Rivera C. & Michael Florig, 2005. "Indivisible goods and fiat money," Working Papers wp212, University of Chile, Department of Economics.
  • Handle: RePEc:udc:wpaper:wp212
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    References listed on IDEAS

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    More about this item

    Keywords

    competitive equilibrium; indivisible goods; fiat money.;

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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