DP8200 Equilibrium selection in a fundamental model of money
|Author(s):||Luis Araujo, Bernardo Guimarães|
|Publication Date:||January 2011|
|Keyword(s):||equilibrium selection, Money, risk-dominance, search|
|Programme Areas:||International Macroeconomics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=8200|
Fundamental models of money always exhibit autarkic equilibria where money has no value. In this paper we propose a simple procedure to select among equilibria in such models. Our procedure unveils a natural mapping between equilibrium behavior and the primitives of the economy, thus offering insights on the conditions under which money emerges as a medium of exchange. Overall, our results favour money over autarky, especially if agents are patient.