Linden Dollar and Virtual Monetary Policy

20 Pages Posted: 10 Feb 2009

See all articles by Philip Ernstberger

Philip Ernstberger

University of Trier - Faculty of Economics

Date Written: January 23, 2009


Growing activity and commitment of money in Second Life motivate the analysis of its economic and monetary system. It is stated that the allocation of resources to the virtual world can increase utility. Resulting demand for virtual goods drives demand for Linden Dollars - the unit of exchange used in Second Life. Since these can be interpreted as money, the effects of monetary policy are shown, which if unanticipated are fully reflected in a change of demand for virtual goods. If money flows out of the economy, costs of maintaining the fixed currency peg arise. In a currency crises model these are weighed against costs of depreciating the currency.

Keywords: Second Life, Linden Dollar, Virtual Worlds

Suggested Citation

Ernstberger, Philip, Linden Dollar and Virtual Monetary Policy (January 23, 2009). Available at SSRN: or

Philip Ernstberger (Contact Author)

University of Trier - Faculty of Economics ( email )


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