Working Paper: CEPR ID: DP8200
Authors: Luis Araujo; Bernardo Guimares
Abstract: Fundamental models of money always exhibit autarkic equilibria where money has no value. In this paper we propose a simple procedure to select among equilibria in such models. Our procedure unveils a natural mapping between equilibrium behavior and the primitives of the economy, thus offering insights on the conditions under which money emerges as a medium of exchange. Overall, our results favour money over autarky, especially if agents are patient.
Keywords: Equilibrium Selection; Money; Risk-Dominance; Search
JEL Codes: D83; E40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| agents' patience (D84) | acceptance of money (E42) |
| agents' patience (D84) | monetary equilibrium exists (E19) |
| monetary equilibrium exists (E19) | acceptance of money (E42) |
| random process governing state evolution (C69) | intrinsic value of money (E41) |
| agents' patience (D84) | uniqueness of monetary equilibrium (E19) |