Another Example in which Lump-sum Money Creation is Beneficial

Alexei Deviatov and Neil Wallace
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Alexei Deviatov: Penn State University
Neil Wallace: Penn State University

The B.E. Journal of Macroeconomics, 2001, vol. advances.1, issue 1

Abstract: A probabilistic version of lump-sum money creation is studied in a random matching model with indivisible money and individual holdings bounded at 2 units. Sufficient conditions are obtained for an ex ante optimum from among implementable steady states to involve lump-sum creation of money. The role of that creation is to change the distribution of money holdings to permit more trade to occur. Beneficial money creation is impossible in a version with a 1 unit upper bound on individual holdings, but can almost certainly happen for all higher bounds.

Keywords: inflation; welfare; matching model (search for similar items in EconPapers)
JEL-codes: E31 (search for similar items in EconPapers)
Date: 2001
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