A Model of Fiat Money and Barter

28 Pages Posted: 8 Jul 2000

See all articles by Fumio Hayashi

Fumio Hayashi

National Graduate Institute for Policy Studies; Harvard University - Department of Economics

Akihiko Matsui

University of Tokyo - Faculty of Economics

Date Written: November 1994

Abstract

We present an infinite horizon model with capital in which fiat money and barter are two competing means of payment. Fiat money has value because barter is limited by the extent of a double coincidence of wants. The pattern of exchange generally involves both money and barter. We find that the Chicago rule is sufficient for Pareto efficiency, while nominal interest smoothing is necessary. For a specific utility function we provide a complete characterization of the patterns of exchange and calculate the range of inflation rates over which a stationary monetary equilibrium exists.

Suggested Citation

Hayashi, Fumio and Matsui, Akihiko, A Model of Fiat Money and Barter (November 1994). NBER Working Paper No. w4919. Available at SSRN: https://ssrn.com/abstract=226610

Fumio Hayashi (Contact Author)

National Graduate Institute for Policy Studies ( email )

Roppongi 7-22-1
Minato-ku
Tokyo, 106-0032
Japan

HOME PAGE: http://https://sites.google.com/site/fumiohayashi/home

Harvard University - Department of Economics

Littauer Center
Cambridge, MA 02138
United States

Akihiko Matsui

University of Tokyo - Faculty of Economics ( email )

7-3-1 Hongo, Bunkyo-ku
Tokyo 113-0033
Japan

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