Information Disclosure and Exchange Media

Federal Reserve Bank of St. Louis Research Paper No. 2012-012A

31 Pages Posted: 13 Jun 2012

See all articles by David Andolfatto

David Andolfatto

Simon Fraser University (SFU) - Department of Economics; Federal Reserve Bank of St. Louis

Fernando M. Martin

Federal Reserve Banks - Federal Reserve Bank of St. Louis

Date Written: April 1, 2012

Abstract

When commitment is lacking, intertemporal trade is facilitated with the use of exchange media — interpreted broadly to include monetary and collateral assets. We study the properties of a model commonly used to motivate monetary exchange, extended to include a physical asset whose expected short-run return is subject to a news shock, but whose expected long-run return is stable. The nondisclosure of news enhances the asset’s property as an exchange medium, and generally improves social welfare. When a nondisclosure policy is infeasible, the framework admits a role for government debt, including fiat money. When lump-sum taxation is not permitted, fiat money may still improve welfare — but only if its circulation is supported by a cash-in-advance constraint.

Keywords: Money, Collateral, News, Nondisclosure

Suggested Citation

Andolfatto, David and Martin, Fernando M., Information Disclosure and Exchange Media (April 1, 2012). Federal Reserve Bank of St. Louis Research Paper No. 2012-012A, Available at SSRN: https://ssrn.com/abstract=2079761 or http://dx.doi.org/10.2139/ssrn.2079761

David Andolfatto (Contact Author)

Simon Fraser University (SFU) - Department of Economics ( email )

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Federal Reserve Bank of St. Louis ( email )

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Fernando M. Martin

Federal Reserve Banks - Federal Reserve Bank of St. Louis ( email )

411 Locust St
Saint Louis, MO 63011
United States
314-444-7350 (Phone)

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