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On money as a medium of exchange when goods vary by supply and demand

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Abstract

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.

Suggested Citation

  • Xavier Cuadras & Randall Wright, 1996. "On money as a medium of exchange when goods vary by supply and demand," Economics Working Papers 160, Department of Economics and Business, Universitat Pompeu Fabra.
  • Handle: RePEc:upf:upfgen:160
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    References listed on IDEAS

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    1. Williamson, Steve & Wright, Randall, 1994. "Barter and Monetary Exchange under Private Information," American Economic Review, American Economic Association, vol. 84(1), pages 104-123, March.
    2. Jones, Robert A, 1976. "The Origin and Development of Media of Exchange," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 757-775, August.
    3. 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.
    4. Cuadras-Morato, Xavier, 1994. "Commodity Money in the Presence of Goods of Heterogeneous Quality," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 4(4), pages 579-591, May.
    5. Burdett, Kenneth, et al, 1995. "Buyers and Sellers: Should I Stay or Should I Go?," American Economic Review, American Economic Association, vol. 85(2), pages 281-286, May.
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    Cited by:

    1. Xavier Cuadras Morató, 2003. "General preferences for consumption goods in the random matching model of commodity money," Economics Working Papers 706, Department of Economics and Business, Universitat Pompeu Fabra.
    2. Vincent Bignon, 2009. "Cigarette Money and Black Market Prices around the 1948 German Miracle," EconomiX Working Papers 2009-2, University of Paris Nanterre, EconomiX.
    3. Xavier Cuadras-Morató, 1997. "Can ice cream be money?: Perishable medium of exchange," Journal of Economics, Springer, vol. 66(2), pages 103-125, June.
    4. Howitt, Peter & Clower, Robert, 2000. "The emergence of economic organization," Journal of Economic Behavior & Organization, Elsevier, vol. 41(1), pages 55-84, January.

    More about this item

    Keywords

    Medium of exchange; search theory; supply; demand;

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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