Memory and the Limits of Money

Thomas Wiseman

No 130313, Department of Economics Working Papers from The University of Texas at Austin, Department of Economics

Abstract: I study a simplified version of Trejos and Wright’s (1995) random matching environment. If histories are observable, then full efficiency is achievable in equilibrium in the limit as agents become patient. In contrast, if histories are not observed, then payoffs in any monetary equilibrium (one in which agents exchange a good for an indivisible unit of fiat money) with a fixed stock of money are bounded away from efficiency. The gap disappears as the stock of money grows, but for any fixed level of patience, efficiency falls to zero if the stock of money is too high. The key insight is that the fraction of agents with zero money holdings in steady state converges to a positive level as patience increases.

Keywords: fiat money; memory; random matching (search for similar items in EconPapers)
JEL-codes: C73 D82 E4 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2013-02
New Economics Papers: this item is included in nep-dge and nep-mon
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https://webspace.utexas.edu/wisemant/www/Money.pdf First version, 2013 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:tex:wpaper:130313

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