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Monetary Equilibrium with Decentralized Trade and Learning

This paper analyzes the stability of monetary regimes in an economy where fiat money is endogenously created by the government, information about its value is imperfect, and learning is decentralized. We show that monetary stability depends crucially on the speed of information transmission in the economy. Our model generates a dynamic on the acceptability of fiat money that resembles historical accounts of the rise and eventual collapse of overissued paper money. It also provides an explanation of the fact that, despite its obvious advantages, the widespread use of fiat money is only a recent development.

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File URL: http://economics.uwo.ca/research/department_working_papers_docs/wp2005/wp2005_1.pdf
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Paper provided by University of Western Ontario, Department of Economics in its series UWO Department of Economics Working Papers with number 20051.

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Date of creation: 2005
Date of revision:
Handle: RePEc:uwo:uwowop:20051
Contact details of provider: Postal: Department of Economics, Reference Centre, Social Science Centre, University of Western Ontario, London, Ontario, Canada N6A 5C2
Phone: 519-661-2111 Ext.85244
Web page: http://economics.uwo.ca/research/research_papers/department_working_papers.html

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  1. Dutta, Prajit K. & Majumdar, Mukul K. & Sundaram, Rangarajan K., 1994. "Parametric continuity in dynamic programming problems," Journal of Economic Dynamics and Control, Elsevier, vol. 18(6), pages 1069-1092, November.
  2. Katzman, Brett & Kennan, John & Wallace, Neil, 2003. "Output and price level effects of monetary uncertainty in a matching model," Journal of Economic Theory, Elsevier, vol. 108(2), pages 217-255, February.
  3. Banks, J.s. & Sunderam, R.K., 1991. "Denumerable-Armed Bandits," RCER Working Papers 277, University of Rochester - Center for Economic Research (RCER).
  4. Wolinsky, Asher, 1990. "Information Revelation in a Market with Pairwise Meetings," Econometrica, Econometric Society, vol. 58(1), pages 1-23, January.
  5. King, Robert G., 1983. "On the economics of private money," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 127-158.
  6. Ritter, Joseph A, 1995. "The Transition from Barter to Fiat Money," American Economic Review, American Economic Association, vol. 85(1), pages 134-49, March.
  7. Araujo, Luis & Shevchenko, Andrei, 2006. "Price dispersion, information and learning," Journal of Monetary Economics, Elsevier, vol. 53(6), pages 1197-1223, September.
  8. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-54, August.
  9. Wallace, Neil, 1997. "Short-Run and Long-Run Effects of Changes in Money in a Random-Matching Model," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1293-1307, December.
  10. Kiyotaki, Nobuhiro & Wright, Randall, 1993. "A Search-Theoretic Approach to Monetary Economics," American Economic Review, American Economic Association, vol. 83(1), pages 63-77, March.
  11. Friedman, Milton & Schwartz, Anna J., 1986. "Has government any role in money?," Journal of Monetary Economics, Elsevier, vol. 17(1), pages 37-62, January.
  12. Andrei Shevchenko & Luis Araujo, 2004. "Prices, Information and Learning," 2004 Meeting Papers 118, Society for Economic Dynamics.
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