Money in a Heterogeneous Agent Model

Roger Farmer

No 19333, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: I introduce money into an incomplete markets model with heterogeneous agents and uninsurable income risk. I show that the model exhibits both non-monetary and monetary equilibria, with the latter existing when income risk is sufficiently high. Using numerical methods, I characterize the properties of these equilibria and analyze their stability. I find that for a range of realistic parameter values, the non-monetary equilibrium is dynamically inefficient and indeterminate, and there is a second determinate monetary equilibrium with positive valued fiat money.

Keywords: Indeterminacy (search for similar items in EconPapers)
JEL-codes: D52 E30 (search for similar items in EconPapers)
Date: 2024-08
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