A Basic Model of Exchange

Guido K. Schaefer
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Guido K. Schaefer: Vienna University of Economics and Business Administration

Chapter 5 in Money, Trust, and Banking, 2005, pp 27-32 from Palgrave Macmillan

Abstract: Abstract To develop an integrated theory of money and banking in an analytically rigorous way, this chapter introduces the basic structure of a formal exchange model capturing essential features of the classical problem of a lack of double coincidence of needs and wants in exchange. The model is a market game between a large number of traders designed to fulfil the requirements for the analysis of an integrated theory of money and banking put forward in the preceding chapter: (i) the model is amenable to the introduction of informational market frictions; (ii) individual deals and partners to a contract can be identified; (iii) the terms of the contract such as quantities and prices are endogenously derived from the economic interactions of traders in the market; (iv) individual agents have no market power in the model. Augmented versions of this model will be used in the following chapters to analyze four different transaction technologies in a common framework: i) barter with intermediate exchange of goods; ii) I.O.U.s as a medium of exchange; iii) money as central bank debt; iv) banks providing transaction services.

Keywords: Market Power; Equilibrium Price; Market Game; Perfect Competition; Good Offer (search for similar items in EconPapers)
Date: 2005
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-51326-6_5

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DOI: 10.1057/9780230513266_5

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