Equilibrium Selection in a Fundamental Model of Money
26 Pages Posted: 31 Jan 2011
Date Written: January 2011
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 Classification: D83, E40
Suggested Citation: Suggested Citation
Araujo, Luis Fernando and Guimarães, Bernardo, Equilibrium Selection in a Fundamental Model of Money (January 2011). CEPR Discussion Paper No. DP8200, Available at SSRN: https://ssrn.com/abstract=1749821
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