Discussion paper

DP8200 Equilibrium selection in a fundamental model of money

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.

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Citation

Guimaraes, B and L Araujo (2011), ‘DP8200 Equilibrium selection in a fundamental model of money‘, CEPR Discussion Paper No. 8200. CEPR Press, Paris & London. https://cepr.org/publications/dp8200