Government transaction policy, the medium of exchange, and welfare

S. Rao Aiyagari, Neil Wallace

Research output: Contribution to journalArticlepeer-review

41 Scopus citations


Policy regarding what the government accepts in transactions is embedded in a version of the Kiyotaki-Wright model of media of exchange. In an example with two goods and one fiat money, the policies that are consistent with fiat money as the unique medium of exchange are identified. These policies have the government favoring fiat money in its transactions. A benefit and a cost accompany any such policy. The benefit is that a worse nonmonetary steady state is eliminated; the cost is that a better monetary steady state is eliminated.Journal of Economic LiteratureClassification Number: E40.

Original languageEnglish (US)
Pages (from-to)1-18
Number of pages18
JournalJournal of Economic Theory
Issue number1
StatePublished - May 1997

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics


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