On money as a medium of exchange when goods vary by supply and demand

Xavier Cuadras-Morató and Randall Wright

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: Models of the exchange process based on search theory can be used to analyze the features of objects that make them more or less likely to emerge as ``money'' in equilibrium. These models illustrate the trade--off between endogenous acceptability (an equilibrium property) and intrinsic characteristics of goods, such as storability, recognizability, etc. In this paper, we look at how the relative supply and demand for various goods affect their likelihood of becoming money. Intuitively, goods in high demand and/or low supply are more likely to appear as commodity money, subject to the qualification that which object ends up circulating as a medium of exchange depends at least partly on convention. Welfare properties are discussed.

Keywords: Medium of exchange; search theory; supply; demand (search for similar items in EconPapers)
JEL-codes: C73 D83 E00 (search for similar items in EconPapers)
Date: 1996-02
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: MONEY AS A MEDIUM OF EXCHANGE WHEN GOODS VARY BY SUPPLY AND DEMAND (1997)
Working Paper: On Money as a Medium of Exchange When Goods Vary by Supply and Demand
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Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:160

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