Does and Should a Commodity Medium of Exchange Have Relatively Low Storage Costs?

Juan-Manuel Renero

International Economic Review, 1999, vol. 40, issue 2, 251-64

Abstract: I provide new existence and welfare results for a version of the Kiyotaki-Wright model. I construct an equilibrium where all agents use mixed strategies. Consequently, an object with a higher storage cost must have a higher acceptability. Therefore, the endogenous transaction pattern corresponds to the observation that money is dominated in rate of return by other assets (e.g., bonds), something that is a central issue in monetary economics. Furthermore, at least in a neighborhood of equal storage costs, the equilibrium that I construct Pareto dominates alternative equilibria in which better objects are widely accepted. Copyright 1999 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Date: 1999
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