Does commodity money eliminate the indeterminacy of equilibrium?

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Abstract

Previous studies have shown that a random-matching model with divisible flat money and without constraint on agents' money inventories possesses a continuum of stationary single-price equilibria. Wallace (J. Econom. Theory 81 (1998) 223) conjectures that the indeterminacy can be eliminated by the use of commodity money. Instead, I find that in a similar random-matching model with dividend-yielding commodity money, a continuum of stationary single-price equilibria exists when the utility of dividend is not too high. This result casts doubt on the conventional belief that the indeterminacy of monetary equilibrium is be caused only by the nominal nature of money.

Original languageEnglish (US)
Pages (from-to)176-190
Number of pages15
JournalJournal of Economic Theory
Volume110
Issue number1
DOIs
StatePublished - May 1 2003

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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