The essentiality of money in environments with centralized trade

Araújo, Luis; Camargo, Braz; Minetti, Raoul; Puzzello, Daniela

doi:10.1016/j.jmoneco.2012.10.007

Cited by 21 publications

(19 citation statements)

References 16 publications

(6 reference statements)

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“…3 Given a finite population of sufficiently patient agents, there exists a continuum of nonmonetary gift-exchange equilibria in addition to the monetary equilibrium; these gift-exchange equilibria are supported by a contagious grim-trigger strategy played by the society of agents as a whole (Kandori, 1992). Some of these gift-exchange equilibria Pareto dominate the monetary equilibrium implying that money may fail to be essential (e.g., Aliprantis, Camera, & Puzzello, 2007a, 2007bAraujo, 2004;Araujo, Camargo, Minetti, & Puzzello, 2012). However, Duffy and Puzzello find that subjects avoid nonmonetary gift-exchange equilibria in favor of coordinating on the monetary equilibrium.…”

Section: Related Literaturementioning

confidence: 99%

“…However, Duffy and Puzzello find that subjects avoid nonmonetary gift-exchange equilibria in favor of coordinating on the monetary equilibrium. Duffy and Puzzello also study versions of the model when money is not available (see Aliprantis et al, 2007a, 2007band Araujo et al, 2012 and find that welfare is significantly higher in environments with money than without money, suggesting that money plays a key role as an efficiency enhancing coordination device. Camera and Casari (2014) also compare outcomes across two environments, with fiat money ("tickets") and without fiat money.…”

Section: Related Literaturementioning

confidence: 99%

“…In addition to studying the Lagos-Wright model, we also study a variant of this environment, due to Araujo et al (2012) where there is no money. In the DMs of this environment, consumers propose quantities that producers should produce for them so that a consumer's action set is again given by ½0; q: The action set of producers is again identified with {0,1} where 0 stands for reject and 1 stands for accept.…”

Section: The No-money Environmentmentioning

confidence: 99%

“…Notice that the environment lacks commitment and formal enforcement. However, since our population is finite, in addition to the monetary equilibrium, there exist multiple nonmonetary equilibria supported by informal enforcement schemes (see Aliprantis et al, 2007aAliprantis et al, , 2007bAraujo et al, 2012;Ellison, 1994;Kandori, 1992).…”

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confidence: 99%

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Experimental Evidence on the Essentiality and Neutrality of Money in a Search Model

Duffy¹,

Puzzello²

2014

Research in Experimental Economics

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We study a microfounded search model of exchange in the laboratory. Using a within-subjects design, we consider exchange behavior with and without an intrinsically worthless token object. While these tokens have no redemption value, like fiat money they may foster greater exchange and welfare via the coordinating role of having prices of goods in terms of tokens. We find that welfare is indeed improved by the presence of tokens provided that the economy starts out with a supply of such tokens. In economies that operate for some time without tokens, the later surprise introduction of tokens does not serve to improve welfare. We also explore the impact of announced changes in the economy-wide stock of tokens (fiat money) on prices. Consistent with the quantity theory of money, we find that increases in the stock of money (tokens) have no real effects and mainly result in proportionate changes to prices.

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Section: Related Literaturementioning

confidence: 99%

Section: Related Literaturementioning

confidence: 99%

Section: The No-money Environmentmentioning

confidence: 99%

mentioning

confidence: 99%

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Experimental Evidence on the Essentiality and Neutrality of Money in a Search Model

Duffy¹,

Puzzello²

2014

Research in Experimental Economics

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“…For research that pursues this idea, and also discusses the essentiality of credit, bonds, banking, or intermediation, seeTownsend (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). For research that pursues this idea, and also discusses the essentiality of credit, bonds, banking, or intermediation, seeTownsend (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).…”

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confidence: 99%

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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Over-the-counter trade and the value of assets as collateral

Geromichalos

Lee

et al. 2015

Econ Theory

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We study asset pricing within a general equilibrium model where unsecured credit is ruled out, and a real asset helps agents carry out mutually beneficial transactions by serving as collateral. A unique feature of our model is that the agent who provides the loan might have a low valu-ation for the collateral asset. Nevertheless, the lender rationally chooses to accept the collateral because she can access a secondary asset market where she can sell the asset. Following a recent strand of the finance literature, based on the influential work of Duffie, Gˆarleanu, and Pedersen (2005), we model this secondary asset market as an over-the-counter market characterized by search and bargaining frictions. We study how the asset's property to serve as collateral affects its equilibrium price, and how the asset price and the economy's welfare are affected by the degree of liquidity in the secondary asset market.We study asset pricing within a general equilibrium model where unsecured credit is ruled out, and a real asset helps agents carry out mutually beneficial transactions by serving as collateral. A unique feature of our model is that the agent who provides the loan might have a low valuation for the collateral asset. Nevertheless, the lender rationally chooses to accept the collateral because she can access a secondary asset market where she can sell the asset. Following a recent strand of the finance literature, based on the influential work of Duffie, Gârleanu, and Pedersen (2005), we model this secondary asset market as an over-the-counter (OTC) market characterized by search and bargaining frictions. We study how the asset's property to serve as collateral affects its equilibrium price, and how the asset price and the economy's welfare are affected by the degree of liquidity in the secondary asset market.

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The essentiality of money in environments with centralized trade

Cited by 21 publications

References 16 publications

Experimental Evidence on the Essentiality and Neutrality of Money in a Search Model

Experimental Evidence on the Essentiality and Neutrality of Money in a Search Model

Money and Credit Redux

Over-the-counter trade and the value of assets as collateral

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