Monetary Equilibrium with Decentralized Trade and Learning

Luis Araujo () and Braz Camargo ()

No 20051, UWO Department of Economics Working Papers from University of Western Ontario, Department of Economics

Abstract: This paper analyzes the stability of monetary regimes in an economy where fiat money is endogenously created by the government, information about its value is imperfect, and learning is decentralized. We show that monetary stability depends crucially on the speed of information transmission in the economy. Our model generates a dynamic on the acceptability of fiat money that resembles historical accounts of the rise and eventual collapse of overissued paper money. It also provides an explanation of the fact that, despite its obvious advantages, the widespread use of fiat money is only a recent development.

Keywords: monetary stability; endogenous money; decentralized trade; learning (search for similar items in EconPapers)
JEL-codes: D82 D83 E00 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2005
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