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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 or recognizability. 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 and fiat money are discussed.
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  • Xavier Cuadras-Morato & Randall Wright, "undated". "On Money as a Medium of Exchange When Goods Vary by Supply and Demand," CARESS Working Papres 97-1, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
    • Handle: RePEc:wop:pennca:97-1
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    References listed on IDEAS

    as
    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. Li, Yiting, 1995. "Commodity money under private information," Journal of Monetary Economics, Elsevier, vol. 36(3), pages 573-592, December.
    3. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-954, August.
    4. 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.
    5. S. Rao Aiyagari & Neil Wallace, 1991. "Existence of Steady States with Positive Consumption in the Kiyotaki-Wright Model," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(5), pages 901-916.
    6. 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.
    7. Oh, Seonghwan, 1989. "A theory of a generally acceptable medium of exchange and barter," Journal of Monetary Economics, Elsevier, vol. 23(1), pages 101-119, January.
    8. 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.
    9. 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. Xavier Cuadras‐Morató, 2004. "Fiat Money in a Search‐Theoretical Model with Generalist Consumers," Manchester School, University of Manchester, vol. 72(1), pages 152-166, January.
    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.
    5. Peter Rupert & Martin Schindler & Andrei Shevchenko & Randall Wright, 2000. "The search-theoretic approach to monetary economics: a primer," Economic Review, Federal Reserve Bank of Cleveland, issue Q IV, pages 10-28.
    6. Vincent Bignon, 2009. "Cigarette Money and Black Market Prices around the 1948 German Miracle," Working Papers hal-04140893, HAL.

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    More about this item

    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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