On money as a medium of exchange when goods vary by supply and demand
Models of the exchange process based on search theory can be used to analyze the features of objects that make them more or less likely to emerge as ``money'' in equilibrium. These models illustrate the trade--off between endogenous acceptability (an equilibrium property) and intrinsic characteristics of goods, such as storability, recognizability, etc. In this paper, we look at how the relative supply and demand for various goods affect their likelihood of becoming money. Intuitively, goods in high demand and/or low supply are more likely to appear as commodity money, subject to the qualification that which object ends up circulating as a medium of exchange depends at least partly on convention. Welfare properties are discussed.
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- Xavier Cuadras, 1993.
"Commodity money in the presence of goods of heterogenous quality,"
Economics Working Papers
40, Department of Economics and Business, Universitat Pompeu Fabra.
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428, Federal Reserve Bank of Minneapolis.
- S. Rao Aiyagari & Neil Wallace, 1991. "Existence of Steady States with Positive Consumption in the Kiyotaki-Wright Model," Review of Economic Studies, Oxford University Press, vol. 58(5), pages 901-916.
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