Fiat Money as a Public Signal, Medium of Exchange, and Punishment

Pedro Gomis-Porqueras and Ching-jen Sun

The B.E. Journal of Theoretical Economics, 2020, vol. 20, issue 2, 11

Abstract: This paper studies different welfare-enhancing roles that fiat money can have. To do so, we consider an indivisible monetary framework where agents are randomly and bilaterally matched, while the government has weak enforcement powers. Within this environment, we analyze state contingent monetary policies and characterize the resulting equilibria under different government record-keeping technologies. We show that a threat of injecting fiat money, conditional on private actions, can improve allocations and achieve efficiency. This type of state contingent policy is effective even when the government cannot observe any private trades and agents can only communicate with the government through cheap talk. In all these equilibria fiat money and self-enforcing credit are complements in the off equilibrium. Finally, this type of equilibria can also emerge even when the injection of fiat money is not a public signal.

Keywords: cheap talk; record-keeping; fiat money (search for similar items in EconPapers)
JEL-codes: C73 D82 E00 E40 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1515/bejte-2019-0098 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
Working Paper: Fiat Money as a Public Signal, Medium of Exchange, and Punishment (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:bejtec:v:20:y:2020:i:2:p:11:n:13

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/bejte/html

DOI: 10.1515/bejte-2019-0098

Access Statistics for this article

The B.E. Journal of Theoretical Economics is currently edited by Burkhard C. Schipper

More articles in The B.E. Journal of Theoretical Economics from De Gruyter
Bibliographic data for series maintained by Peter Golla ().