The Dynamics of Money

Per Bak, Simon F. Norrelykke and Martin Shubik

Research in Economics from Santa Fe Institute

Abstract: General equilibrium theory in economics defines the relative prices for goods and services, but does not fix the absolute values of prices. We present a theory of money in which the value of money is a time dependent "strategic variable," to be chosen by the individual agents. The idea is illustrated by a simple network model of monopolistic vendors and buyers. The indeterminacy of the value of money in equilibrium theory implies a soft "Goldstone mode," leading to large fluctuations in prices in the presence of noise.

Submitted to Physical Review Letters.

Keywords: General equilibrium; money; Goldstone modes (search for similar items in EconPapers)
Date: 1998-11
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