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Memory and the Limits of Money

Author

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  • Thomas Wiseman

    (Department of Economics, The University of Texas at Austin)

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.

Suggested Citation

  • Thomas Wiseman, 2013. "Memory and the Limits of Money," Department of Economics Working Papers 130313, The University of Texas at Austin, Department of Economics.
    • Handle: RePEc:tex:wpaper:130313
    as

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    File URL: https://webspace.utexas.edu/wisemant/www/Money.pdf
    File Function: First version, 2013
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    References listed on IDEAS

    as
    1. Kocherlakota, Narayana R., 1998. "Money Is Memory," Journal of Economic Theory, Elsevier, vol. 81(2), pages 232-251, August.
    2. 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.
    3. Wolitzky, Alexander, 2015. "Communication with tokens in repeated games on networks," Theoretical Economics, Econometric Society, vol. 10(1), January.
    4. Kiyotaki, Nobuhiro & Wright, Randall, 1993. "A Search-Theoretic Approach to Monetary Economics," American Economic Review, American Economic Association, vol. 83(1), pages 63-77, March.
    5. Mailath, George J. & Samuelson, Larry, 2006. "Repeated Games and Reputations: Long-Run Relationships," OUP Catalogue, Oxford University Press, number 9780195300796.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    fiat money; memory; random matching;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

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