The Mechanism-Design Approach to Monetary Theory

Neil Wallace

Chapter 01 in Handbook of Monetary Economics, 2010, vol. 3, pp 3-23 from Elsevier

Abstract: The mechanism-design approach to monetary theory is the search for fruitful settings in which money is necessary for the achievement of some desirable allocations. Fruitfulness means that the settings provide insights about puzzling observations and policy questions. Settings with three frictions are considered: imperfect monitoring, costly connections among people, and imperfect recognizability of assets. An illustrative model with those frictions is used to explain as an optimum the following features of actual economies: currency is a uniform object, currency is (usually) dominated in rate of return, some transactions are accomplished using currency and others are accomplished in other ways.

Keywords: Money; Frictions; Inside-money; Mechanism-design; Monetary and Fiscal policy; Outside-money (search for similar items in EconPapers)
JEL-codes: E0 (search for similar items in EconPapers)
Date: 2010
ISBN: 978-0-444-53470-5
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Citations: View citations in EconPapers (33)

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