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Inside and Outside Money, with an Application to the Russian Virtual Economy

Author

Listed:
  • Svetlana Boyarchenko

    (The University of Texas at Austin)

  • Sergei Levendorskii

    (The University of Texas at Austin)

Abstract

We analyze the endogenous appearance of money substitutes, their interaction with outside money, and resulting distortions in the price system of an economy with large monopolies and wide-spread informal networks. The economy consists of productive, individually optimizing agents and less productive colluding agents who issue universally acceptable money substitutes. We distinguish equilibria by types of exchange both between agents of one type and between those of different types and show that for small trading frictions, only three types of equilibria can be sustained. A novelty of the analysis is that the agents issuing money substitutes survive by their collusion.

Suggested Citation

  • Svetlana Boyarchenko & Sergei Levendorskii, 2004. "Inside and Outside Money, with an Application to the Russian Virtual Economy," Macroeconomics 0405009, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpma:0405009
    Note: Type of Document - pdf; pages: 22
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/mac/papers/0405/0405009.pdf
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    References listed on IDEAS

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    5. Ricardo de O. Cavalcanti & Neil Wallace, 1999. "Inside and outside money as alternative media of exchange," Proceedings, Federal Reserve Bank of Cleveland, pages 443-468.
    6. Clifford Gaddy & Barry W. Ickes, 1998. "To Restructure or Not to Restructure: Informal Activities and Enterprise Behavior in Transition," William Davidson Institute Working Papers Series 134, William Davidson Institute at the University of Michigan.
    7. S.I. Boyarchenko & S.Z. Levendorskii, 2000. "Search-Money-and-Barter Models of Financial Stabilization," William Davidson Institute Working Papers Series 332, William Davidson Institute at the University of Michigan.
    8. Olivier Blanchard & Michael Kremer, 1997. "Disorganization," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(4), pages 1091-1126.
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    Cited by:

    1. Agapov Stanislav & Boyarchenko Svetlana & Levendorsky Sergey, 2003. "A Three-Sector Model of the Russian Virtual Economy," EERC Working Paper Series 02-06e, EERC Research Network, Russia and CIS.

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    More about this item

    Keywords

    money substitutes; search; collusion; trading frictions.;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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