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Money in a Heterogeneous Agent Model

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  • Roger E.A. Farmer

Abstract

I introduce money into an incomplete markets model with heterogeneous agents and uninsurable income risk. I show that the model exhibits both non-monetary and monetary equilibria, with the latter existing when income risk is sufficiently high. Using numerical methods, I characterize the properties of these equilibria and analyze their stability. I find that for a range of realistic parameter values, the non-monetary equilibrium is dynamically inefficient and indeterminate, and there is a second determinate monetary equilibrium with positive valued fiat money.

Suggested Citation

  • Roger E.A. Farmer, 2024. "Money in a Heterogeneous Agent Model," NBER Working Papers 32836, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32836
    Note: ME
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    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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