Money and capital as competing media of exchange

Ricardo Lagos () and Guillaume Rocheteau ()

No 341, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: We construct a model where capital competes with fiat money as a medium of exchange, and we establish conditions on fundamentals under which fiat money can be both valued and socially beneficial. When the socially efficient stock of capital is too low to provide the liquidity agents need, they overaccumulate productive assets to use as media of exchange. When this is the case, there exists a monetary equilibrium that dominates the nonmonetary one in terms of welfare. Under the Friedman Rule, fiat money provides just enough liquidity so that agents choose to accumulate the same capital stock a social planner would.

Keywords: Capital; Liquidity (Economics) (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
Date: 2004
View list of references View citations in EconPapers

Published in Journal of Economic Theory

Downloads: (external link)
http://minneapolisfed.org/research/sr/sr341.pdf (application/pdf)

Related works:
Working Paper: Money and capital as competing media of exchange (2006)
Journal Article: Money and capital as competing media of exchange (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:fip:fedmsr:341

Ordering information: This working paper can be ordered from
http://www.minneapolisfed.org/pubs/

Access Statistics for this paper

More papers in Staff Report from Federal Reserve Bank of Minneapolis
Contact information at EDIRC.
Series data maintained by Diane Rosenberger ().