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Social norms and monetary trading

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  • Guilherme Carmona

Abstract

Random matching models have been used in Monetary Economics to argue that money can increase the well being of all agents in the economy. If the model features a finite number of agents it will be shown that there is an equilibrium, analogous to the contagious equilibria described in Kandori (1992), that Pareto dominates the monetary one. However it will be shown also that monetaty equilibria have two important advantages: firstly, they are more plausible in large economies in the sense that the lowest discount factor compatible with monetary equilibria doesnt depend on the population size, which is not the case with contagious equilibria; secondly, it is more stable to finite deviations in the following sense: no matter what the past has been, future play of the equilibrium strategies will give players the same payoff as if the equilibrium strategies were always followed.

Suggested Citation

  • Guilherme Carmona, 2002. "Social norms and monetary trading," Nova SBE Working Paper Series wp418, Universidade Nova de Lisboa, Nova School of Business and Economics.
    • Handle: RePEc:unl:unlfep:wp418
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    References listed on IDEAS

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    1. Kocherlakota, Narayana R., 1998. "Money Is Memory," Journal of Economic Theory, Elsevier, vol. 81(2), pages 232-251, August.
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    6. 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.
    7. Joao Gata, "undated". "Repeated Random Matching Games under Restricted Information. Part I: Equilibria," Discussion Papers 95/19, Department of Economics, University of York.
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    9. Michihiro Kandori, 1992. "Social Norms and Community Enforcement," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 59(1), pages 63-80.
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    1. Guilherme Carmona, 2002. "Monetary trading: an optimal exchange system," Nova SBE Working Paper Series wp420, Universidade Nova de Lisboa, Nova School of Business and Economics.

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    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General

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