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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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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 160.

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Date of creation: Feb 1996
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Handle: RePEc:upf:upfgen:160
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  1. Jones, Robert A, 1976. "The Origin and Development of Media of Exchange," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 757-75, August.
  2. S. Rao Aiyagari & Neil Wallace, 1991. "Existence of steady states with positive consumption in the Kiyotaki-Wright model," Working Papers 428, Federal Reserve Bank of Minneapolis.
  3. Williamson, S. & Wright, R., 1991. "Barter and Monetary Exchange Under Private Information," University of Western Ontario, The Centre for the Study of International Economic Relations Working Papers 9107, University of Western Ontario, The Centre for the Study of International Economic Relations.
  4. Cuadras-Morato, Xavier, 1994. "Commodity Money in the Presence of Goods of Heterogeneous Quality," Economic Theory, Springer, vol. 4(4), pages 579-91, 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 281-86, May.
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