On Money as a Substitute for Perfect Recall
In environments with no commitment and with a need for intertemporal trade, bounded recall is shown to be a sufficient friction for a receipt system (fiat money) to lead to improved allocations in an otherwise frictionless Walrasian model. The absence of other frictions makes price determination tractable, thus the model may be used for quantitative monetary policy experiments. Some issues regarding the divisibility of money are also discussed.
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- Harold L. Cole & Narayana R. Kocherlakota, 2001.
"Finite memory and imperfect monitoring,"
287, Federal Reserve Bank of Minneapolis.
- Kocherlakota, Narayana & Wallace, Neil, 1998. "Incomplete Record-Keeping and Optimal Payment Arrangements," Journal of Economic Theory, Elsevier, vol. 81(2), pages 272-289, August.
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