MONEY AS A MECHANISM IN A BEWLEY ECONOMY

Edward Green () and Ruilin Zhou ()

International Economic Review, 2005, vol. 46, issue 2, pages 351-371

Abstract: We investigate the efficiency property of a monetary economy with spot trade. We prove a conjecture that is essentially due to Bewley ("Models of Monetary Economics" (1980); "Econometrica" 51 (1983), 1485-504). The gist is that monetary spot trading is nearly efficient ex ante in an environment where very patient agents can accumulate large enough money stocks to be completely self-insured. We also study examples where a nonmonetary mechanism is preferred ex ante to any monetary mechanism in a stationary environment, and where an inflationary monetary mechanism is preferred ex ante to a laissez-faire or deflationary monetary mechanism in an environment with impatient agents. Copyright 2005 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

Date: 2005
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