A contribution to the pure theory of money

Nobuhiro Kiyotaki and Randall Wright

No 123, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: We analyze a general equilibrium model with search frictions and differentiated commodities. Because of the many differentiated commodities, barter is difficult because it requires a double coincidence of wants, and this provides a medium of exchange role for fiat money. We prove the existence of equilibrium with valued fiat money and show it is robust to certain changes in the environment, including imposing transactions costs, storage costs, and taxes on the use of money. Rate of return dominance, liquidity, and the potential welfare improving role of fiat money are discussed.

Keywords: Money; theory (search for similar items in EconPapers)
Date: 1989
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Citations: View citations in EconPapers (7)

Published in Journal of Economic Theory (Vol. 53, n.2, April 1991, pp. 215-235)

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