Linden Dollar and Virtual Monetary Policy
20 Pages Posted: 10 Feb 2009
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
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