Money is Memory

Kocherlakota, Narayana

doi:10.21034/sr.218

Cited by 209 publications

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“…In particular, a direct corollary of Proposition 4 is a generalization of Kocherlakota's (1998) result that money cannot be essential if μ D = 1. 15 15 To verify this, simply insert μ D = 1 into the conditions for monetary equilibrium to exist.…”

Section: Endogenous Policy and Debt Limitsmentioning

confidence: 89%

“…3 The notion that it is important to ask whether money is essential goes back to Frank Hahn. For research that pursues this idea, and also discusses the essentiality of credit, bonds, banking, or intermediation, see Townsend (1987Townsend ( , 1988, Kocherlakota (1998), Wallace (2001Wallace ( , 2010, Mills (2007), Aliprantis, Camera, and Puzzello (2007), Araujo and Minetti (2011), Berentsen and Waller (2011), Araujo, Camargo, Minetti, and Puzzello (2012), Gu, Mattesini, Monnet, and Wright (2013a), Araujo and Hu (2014), and Nosal, Wong, and Wright (2014). exchange rates) matter, one should be able to say how and why the benchmark results do not apply.…”

Section: Introductionmentioning

confidence: 99%

“…Independent of policy considerations, as mentioned above, as a matter of pure theory it is challenging to model money and credit together, because assumptions adopted to make one viable often make the other untenable. Kocherlakota (1998) showed money is inessential if credit can be supported with commitment or enforcement. Further, he showed money is inessential even without commitment if there is perfect information-monitoring and record keeping-about actions, since then agents who renege on obligations can be punished and this can allow credit without commitment.…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Money and Credit Redux

Mattesini²,

Wright

2016

Econometrica

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We analyze money and credit as competing payment instruments in decentralized exchange. In natural environments, we show the economy does not need both: if credit is easy, money is irrelevant; if credit is tight, money is essential, but credit becomes irrelevant. Changes in credit conditions are neutral because real balances respond endogenously to keep total liquidity constant. This is true for both exogenous and endogenous debt limits and policy limits, secured and unsecured lending, and general pricing mechanisms. While we show how to overturn some of these results, the benchmark model suggests credit might matter less than people think.

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Section: Endogenous Policy and Debt Limitsmentioning

confidence: 89%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Money and Credit Redux

Mattesini²,

Wright

2016

Econometrica

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“…17. Kocherlakota and Wallace (1998) and Kocherlakota (1998Kocherlakota ( , 2002 compare money to a recordkeeping device, which they call memory. Luther and Olson (2015) argue that bitcoin is an application of the money-is-memory view.…”

Section: A a Brief Overviewmentioning

confidence: 99%

Cryptocurrencies, Network Effects, and Switching Costs

Luther

2015

Contemporary Economic Policy

139

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Cryptocurrencies are digital alternatives to traditional government‐issued paper monies. Given the current state of technology and skepticism regarding the future purchasing power of existing monies, why have cryptocurrencies failed to gain widespread acceptance? I offer an explanation based on network effects and switching costs. In order to articulate the problem that agents considering cryptocurrencies face, I employ a simple model developed by Dowd and Greenaway (1993) (Dowd, K., and D. Greenaway. “Currency Competition, Network Externalities, and Switching Costs: Towards an Alternative View of Optimum Currency Areas.” The Economic Journal, 103(420), 1993, 1180–89). The model demonstrates that agents may fail to adopt an alternative currency when network effects and switching costs are present, even if all agents agree that the prevailing currency is inferior. The limited success of bitcoin—almost certainly the most popular cryptocurrency to date—serves to illustrate. After briefly surveying episodes of successful monetary transition, I conclude that cryptocurrencies like bitcoin are unlikely to generate widespread acceptance in the absence of either significant monetary instability or government support. (JEL E40, E41, E42, E49)

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“…It introduces a round of Walrasian "centralized" trading after each round of bilateral random "decentralized" trading. The basic premise is that, although the population meets repeatedly in the centralized market, anonymity and random pairings are frictions sufficient for money to be essential (see Lagos and Wright (2005, p. 466) or Rocheteau and Wright (2005, p. 175); for the essentiality, see Huggett and Krasa (1996) and Kocherlakota (1998)). This note, based on Aliprantis, Camera, and Puzzello (2005) (where details and proofs can be found), clarifies that anonymity and random pairings are not per se sufficient to generate an essential role for money.…”

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confidence: 99%

Contagion Equilibria in a Monetary Model

2007

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THE MODEL OF LAGOS AND alters the meeting friction of the typical search model of money to obtain degeneracy in equilibrium holdings and enhance analytical tractability. It introduces a round of Walrasian "centralized" trading after each round of bilateral random "decentralized" trading. The basic premise is that, although the population meets repeatedly in the centralized market, anonymity and random pairings are frictions sufficient for money to be essential (see Lagos and Wright (2005, p. 466) or Rocheteau and Wright (2005, p. 175); for the essentiality, see Huggett and Krasa (1996) and Kocherlakota (1998)).This note, based on Aliprantis, Camera, and Puzzello (2005) (where details and proofs can be found), clarifies that anonymity and random pairings are not per se sufficient to generate an essential role for money. Further frictions are generally needed. The starting point is the work of Ellison (1994) and Kandori (1992), who proved that efficient outcomes are supported by "contagion equilibria" in repeated anonymous matching games. We cast the model in Lagos and Wright (2005) as an infinitely repeated game with observable individual actions 2 and we show the existence of contagion equilibria if agents are sufficiently patient. This, however, is not robust to adding a small amount of noise in the observation of individual behavior, because equilibria would arise similar to those in the continuum limit where individual behavior is unobservable (Al-Najjar and Smorodinsky (2001), Fudenberg, Levine, andPesendorfer (1998), Levine and Pesendorfer (1995)).The argument goes as follows. There is a unique efficient allocation that is sustained by "desirable" behavior. So, consider a social norm that specifies autarky forever as the sanction rule if a defection from desirable behavior is observed. Centralized trading fosters the rapid spread of sanctions and so discourages defections in all anonymous matches. Intuitively, the random matching friction in the typical search model fragments the process of exchange of goods and of information, but introducing centralized trading allows an informal enforcement scheme to emerge. Consequently, money ceases to be essential for the process of exchange. In fact, eliminating money improves efficiency.

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Money is Memory

Cited by 209 publications

References 0 publications

Money and Credit Redux

Money and Credit Redux

Cryptocurrencies, Network Effects, and Switching Costs

Contagion Equilibria in a Monetary Model

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