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A Model of Fiat Money and Barter

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Author Info
Fumio Hayashi
Akihiko Matsui

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Abstract

We present an infinite horizon model with capital in which fiat money and barter are two competing means of payment. Fiat money has value because barter is limited by the extent of a double coincidence of wants. The pattern of exchange generally involves both money and barter. We find that the Chicago rule is sufficient for Pareto efficiency, while nominal interest smoothing is necessary. For a specific utility function we provide a complete characterization of the patterns of exchange and calculate the range of inflation rates over which a stationary monetary equilibrium exists.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4919.

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Date of creation: Nov 1994
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Handle: RePEc:nbr:nberwo:4919

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Find related papers by JEL classification:
D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Chatterjee, S. & Corbae, D., 1991. "Endogenous Market Participation and General Equilibrium Value of Money," Working Papers 91-08, University of Iowa, Department of Economics.
  2. Engineer, Merwan & Bernhardt, Dan, 1991. "Money, Barter, and the Optimality of Legal Restrictions," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 743-73, August. [Downloadable!] (restricted)
  3. Shapley, Lloyd S. & Shubik, Martin, 1969. "On market games," Journal of Economic Theory, Elsevier, vol. 1(1), pages 9-25, June. [Downloadable!] (restricted)
  4. Oh, Seonghwan, 1989. "A theory of a generally acceptable medium of exchange and barter," Journal of Monetary Economics, Elsevier, vol. 23(1), pages 101-119, January. [Downloadable!] (restricted)
  5. Kiyotaki, Nobuhiro & Wright, Randall, 1991. "A contribution to the pure theory of money," Journal of Economic Theory, Elsevier, vol. 53(2), pages 215-235, April. [Downloadable!] (restricted)
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  6. Grandmont, Jean-Michel & Younes, Yves, 1972. "On the Role of Money and the Existence of a Monetary Equilibrium," Review of Economic Studies, Blackwell Publishing, vol. 39(3), pages 355-72, July. [Downloadable!] (restricted)
  7. Grandmont, Jean-Michel & Younes, Yves, 1973. "On the Efficiency of a Monetary Equilibrium," Review of Economic Studies, Blackwell Publishing, vol. 40(2), pages 149-65, April. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Edward J. Green, 2002. "Payment Arrangements and Inflation," American Economic Review, American Economic Association, vol. 92(2), pages 51-57, May. [Downloadable!]
  2. Munetomo Ando & Daisuke Oyama, 2002. "A model of a spatial economy with trading posts," Economics Bulletin, Economics Bulletin, vol. 18(1), pages 1-11. [Downloadable!]
  3. Randall Wright, 2005. "Introduction to "Models of Monetary Economies II: The Next Generation"," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Oct, pages 2-9.
    Other versions:
  4. Krishna, R. Vijay, 2003. "Non-robustness of the Cash-in-Advance Equilibrium in the Trading-Post Model," Working Papers 9-03-2, Pennsylvania State University, Department of Economics. [Downloadable!]
  5. R. Vijay Krishna, 2005. "Non-robustness of the cash-in-advance equilibrium in the trading post model," Economics Bulletin, Economics Bulletin, vol. 5(3), pages 1-5. [Downloadable!]
  6. Sophie Brana & Mathilde Maurel, 1999. "Barter in Russia: Liquidity Shortage versus Lack of Restructuring," William Davidson Institute Working Papers Series 271, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
    Other versions:
  7. Samuel E. Vazquez, 2009. "Scale Invariance, Bounded Rationality and Non-Equilibrium Economics," Quantitative Finance Papers 0902.3840, arXiv.org. [Downloadable!]
  8. Frank Bohn, 2002. "Eliminating the Inflationary Finance Trap in a Politically Unstable Country: Domestic Politics versus International Pressure," Economics Discussion Papers 551, University of Essex, Department of Economics. [Downloadable!]
  9. R. Vijay Krishna, 2004. "Non-robustness of the Cash-in-advance Equilibrium in the Trading Post Model," Levine's Bibliography 122247000000000104, UCLA Department of Economics. [Downloadable!]
  10. repec:bep:macadv:v:1:y:2001:i:advances/1/2:p:1026-1026 is not listed on IDEAS
  11. Akihiko Matsui, 1998. "Strong Currency and Weak Currency," CIRJE F-Series CIRJE-F-14, CIRJE, Faculty of Economics, University of Tokyo. [Downloadable!]
    Other versions:
  12. George Selgin, 2003. "Adaptive Learning and the Transition to Fiat Money," Economic Journal, Royal Economic Society, vol. 113(484), pages 147-165, January. [Downloadable!] (restricted)
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