There will be money

Araujo, Luis and Guimaraes, Bernardo (2010) There will be money. CEP Discussion Papers (CEPDP1004). London School of Economics and Political Science. Centre for Economic Performance, London, UK.

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Abstract

A common belief among monetary theorists is that monetary equilibria are tenuous due to the intrinsic uselessness of fiat money (Wallace (1978)). In this article we argue that the tenuousness of monetary equilibria vanishes as soon as one introduces a small perturbation in an otherwise standard random matching model of money. Precisely, we show that the sheer belief that fiat money may become intrinsically useful, even if only in an almost unreachable state, might be enough to rule out nonmonetary equilibria. In a large region of parameters, agents’ beliefs and behavior are completely determined by fundamentals.

Item Type:	Monograph (Discussion Paper)
Official URL:	https://cep.lse.ac.uk/_new/publications/discussion...
Additional Information:	© 2010 The Author(s)
Divisions:	Centre for Economic Performance
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HB Economic Theory
JEL classification:	E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E40 - General D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search; Learning; Information and Knowledge; Communication; Belief
Date Deposited:	05 Mar 2024 13:09
Last Modified:	05 Mar 2024 13:09
URI:	http://eprints.lse.ac.uk/id/eprint/121710

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