On the Coexistence of Money and Higher-Return Assets and its Social Role
University of California, Irvine; Federal Reserve Banks - Federal Reserve Bank of Cleveland
January 19, 2011
FRB of Cleveland Working Paper No. 11-04
This paper adopts mechanism design to tackle the central issue in monetary theory, namely, the coexistence of money and higher-return assets. I describe an economy with pairwise meetings, where fiat money and risk-free capital compete as means of payment. Whenever fiat money has an essential role, any constrained-efficient allocation is such that capital commands a higher rate of return than fiat money.
Number of Pages in PDF File: 46
Keywords: Cost of inflation, pairwise trades, optimal mechanism
JEL Classification: D82, D83, E40, E50working papers series
Date posted: January 21, 2011
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