Monetary equilibrium with decentralized trade and learning

Luis Araujo () and Braz Camargo ()

No 222, Textos para discussão from FGV EESP - Escola de Economia de São Paulo, Fundação Getulio Vargas (Brazil)

Abstract: This paper analyzes the stability of monetary regimes in an economy where fiat money is endogenously created by the government, information about its value is imperfect, and learning is decentralized. We show that monetary stability depends crucially on the speed of information transmission in the economy. Our model generates a dynamic on the acceptability of fiat money that resembles historical accounts of the rise and eventual collapse of overissued paper money. It also provides an explanation of the fact that, despite its obvious advantages, the widespread use of fiat money is only a recent development.

Date: 2010-06-25
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mon
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Related works:
Working Paper: Monetary Equilibrium with Decentralized Trade and Learning (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:fgv:eesptd:222

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