On the coexistence of money and higher-return assets and its social role

Tai Wei Hu, Guillaume Rocheteau*

*Corresponding author for this work

Research output: Contribution to journalArticle (Academic Journal)peer-review

15 Citations (Scopus)

Abstract

This paper adopts mechanism design to investigate the coexistence of fiat money and higher-return assets. We consider an economy with pairwise meetings where fiat money and risk-free capital compete as means of payment, as in [28]. The trading mechanism in pairwise meetings is chosen among all individually rational, renegotiation-proof mechanisms to maximize society's welfare. We show that in any stationary monetary equilibrium capital commands a higher rate of return than fiat money.

Original languageEnglish
Pages (from-to)2520-2560
Number of pages41
JournalJournal of Economic Theory
Volume148
Issue number6
DOIs
Publication statusPublished - Nov 2013

Keywords

  • Capital
  • Money
  • Pairwise trades
  • Rate-of-return dominance

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