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Game-theoretic foundations of monetary equilibrium

  • Camera, Gabriele
  • Gioffré, Alessandro

Monetary theorists have advanced an intriguing notion: we exchange money to make up for a lack of enforcement, when it is difficult to monitor and sanction opportunistic behaviors. We demonstrate that, in fact, monetary equilibrium cannot generally be sustained when monitoring and punishment limitations preclude enforcement - external or not. Simply put, monetary systems cannot operate independently of institutions - formal or informal - designed to monitor behaviors and sanction undesirable ones. This fundamental result is derived by integrating monetary theory with the theory of repeated games, studying monetary equilibrium as the outcome of a matching game with private monitoring.

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Paper provided by Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt in its series SAFE Working Paper Series with number 32.

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Date of creation: 2013
Date of revision:
Handle: RePEc:zbw:safewp:32
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  1. Avinash Dixit, 2003. "On Modes of Economic Governance," Econometrica, Econometric Society, vol. 71(2), pages 449-481, March.
  2. Huggett, Mark & Krasa, Stefan, 1996. "Money and Storage in a Differential Information Economy," Economic Theory, Springer, vol. 8(2), pages 191-210, August.
  3. Stefan Krasa & Anne P. Villamil, 2000. "Optimal Contracts when Enforcement Is a Decision Variable," Econometrica, Econometric Society, vol. 68(1), pages 119-134, January.
  4. Kimbrough, Erik O. & Smith, Vernon L. & Wilson, Bart J., 2010. "Exchange, theft, and the social formation of property," Journal of Economic Behavior & Organization, Elsevier, vol. 74(3), pages 206-229, June.
  5. Kandori, Michihiro, 1992. "Social Norms and Community Enforcement," Review of Economic Studies, Wiley Blackwell, vol. 59(1), pages 63-80, January.
  6. Thorsten Koeppl, 2005. "Optimal Dynamic Risk Sharing when Enforcement is a Decision Variable," Working Papers 1050, Queen's University, Department of Economics.
  7. Erik O. Kimbrough & Vernon L. Smith & Bart J. Wilson, 2008. "Historical Property Rights, Sociality, and the Emergence of Impersonal Exchange in Long-Distance Trade," American Economic Review, American Economic Association, vol. 98(3), pages 1009-39, June.
  8. Glen Ellison, 2010. "Cooperation in the Prisoner's Dilemma with Anonymous Random Matching," Levine's Working Paper Archive 631, David K. Levine.
  9. Joseph M. Ostroy & Ross M. Starr, 1988. "The Transactions Role of Money," UCLA Economics Working Papers 505, UCLA Department of Economics.
  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. Gabriele Camera & Marco Casari, 2009. "Cooperation among Strangers under the Shadow of the Future," American Economic Review, American Economic Association, vol. 99(3), pages 979-1005, June.
  12. Gabriele Camera & Marco Casari, 2010. "The Coordination Value of Monetary Exchange: Experimental Evidence," Purdue University Economics Working Papers 1239, Purdue University, Department of Economics.
  13. Araujo, Luis, 2004. "Social norms and money," Journal of Monetary Economics, Elsevier, vol. 51(2), pages 241-256, March.
  14. Narayana R. Kocherlakota, 1996. "Money is memory," Staff Report 218, Federal Reserve Bank of Minneapolis.
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