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Inside and Outside Money, with an Application to the Russian Virtual Economy

  • Svetlana Boyarchenko

    (The University of Texas at Austin)

  • Sergei Levendorskii

    (The University of Texas at Austin)

We analyze the endogenous appearance of money substitutes, their interaction with outside money, and resulting distortions in the price system of an economy with large monopolies and wide-spread informal networks. The economy consists of productive, individually optimizing agents and less productive colluding agents who issue universally acceptable money substitutes. We distinguish equilibria by types of exchange both between agents of one type and between those of different types and show that for small trading frictions, only three types of equilibria can be sustained. A novelty of the analysis is that the agents issuing money substitutes survive by their collusion.

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File URL: http://128.118.178.162/eps/mac/papers/0405/0405009.pdf
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Paper provided by EconWPA in its series Macroeconomics with number 0405009.

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Length: 22 pages
Date of creation: 11 May 2004
Date of revision:
Handle: RePEc:wpa:wuwpma:0405009
Note: Type of Document - pdf; pages: 22
Contact details of provider: Web page: http://128.118.178.162

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  1. Ricardo de O. Cavalcanti & Andres Erosa & Ted Temzelides, 1999. "Private Money and Reserve Management in a Random-Matching Model," Journal of Political Economy, University of Chicago Press, vol. 107(5), pages 929-945, October.
  2. Stephen D. Williamson, 1999. "Private money," Proceedings, Federal Reserve Bank of Cleveland, pages 469-499.
  3. Neil Wallace & Ruilin Zhou, 1996. "A model of a currency shortage," Working Papers 569, Federal Reserve Bank of Minneapolis.
  4. S.I. Boyarchenko & S.Z. Levendorskii, 2000. "Search-Money-and-Barter Models of Financial Stabilization," William Davidson Institute Working Papers Series 332, William Davidson Institute at the University of Michigan.
  5. Cavalcanti, Ricardo de O & Wallace, Neil, 1999. "Inside and Outside Money as Alternative Media of Exchange," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(3), pages 443-57, August.
  6. Clifford Gaddy & Barry W. Ickes, 1998. "To Restructure or Not to Restructure: Informal Activities and Enterprise Behavior in Transition," William Davidson Institute Working Papers Series 134, William Davidson Institute at the University of Michigan.
  7. Shirley J Gedeon, 2000. "Money Unmade: Barter and the Fate of Russian Capitalism," Comparative Economic Studies, Palgrave Macmillan, vol. 42(2), pages 113-114, July.
  8. Ricardo de O. Cavalcanti & Neil Wallace, 1999. "A model of private bank-note issue," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(1), pages 104-136, January.
  9. 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.
  10. Blanchard, Olivier & Kremer, Michael R., 1997. "Disorganization," Scholarly Articles 3659691, Harvard University Department of Economics.
  11. Burdett, Kenneth & Trejos, Alberto & Wright, Randall, 2001. "Cigarette Money," Journal of Economic Theory, Elsevier, vol. 99(1-2), pages 117-142, July.
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