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The two demands: Why a demand for non-consumable money is different from a demand for consumable goods

Author

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  • Dmitry Levando

    (National Research University, Moscow, Russia)

Abstract

The paper explicitly discusses the key differences between a demand for consumables and demand for (non-consumable) credit money; why this matters. For example, in contrast to consumables, money can not be demanded by only one agent; it is a stock variable; credit requires special arrangements to implement trust now to clear up a debt later; for a finite time period there is zero demand for non-consumable money (Hahn paradox). These issues are important for developing micro-foundations of monetary macroeconomics, including those for a liquidity trap and credit crunches, not well investigated in existing literature. Contemporary economic theory already has some answers, initiated by works of Martin Shubik. These micro-foundations are vitally important for understanding the 2020 credit crisis, and the concept of a credit cycle as a long-run interaction between real and financial sectors of economic systems.

Suggested Citation

  • Dmitry Levando, 2020. "The two demands: Why a demand for non-consumable money is different from a demand for consumable goods," Working Papers 2020:05, Department of Economics, University of Venice "Ca' Foscari".
    • Handle: RePEc:ven:wpaper:2020:05
    as

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    References listed on IDEAS

    as
    1. M. Shubik & D. Tsomocos, 1992. "A strategic market game with a mutual bank with fractional reserves and redemption in gold," Journal of Economics, Springer, vol. 55(2), pages 123-150, June.
    2. Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 881-894, October.
    3. Martin Shubik, 2004. "The Theory of Money and Financial Institutions: Volume 2," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262693127, December.
    4. Dubey, P. & Shubik, M., 1988. "A note on an optimal garnishing rule," Economics Letters, Elsevier, vol. 27(1), pages 5-6.
    5. Benjamin M. Friedman & Michael Woodford (ed.), 2010. "Handbook of Monetary Economics," Handbook of Monetary Economics, Elsevier, edition 1, volume 3, number 3.
    6. Shubik, Martin, 1985. "A note on enough money in a strategic market game with complete or fewer markets," Economics Letters, Elsevier, vol. 19(3), pages 231-235.
    7. Martin Shubik, 2004. "The Theory of Money and Financial Institutions: Volume 1," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262693119, December.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Demand for goods; demand for money; Martin Shubik; micro-foundations of macroeconomics; monetary economics; liquidity trap;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E49 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Other
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory

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