Equilibrium Selection in a Fundamental Model of Money

26 Pages Posted: 31 Jan 2011

See all articles by Luis F. Araujo

Luis F. Araujo

Michigan State University - Department of Economics

Bernardo Guimarães

London School of Economics & Political Science (LSE) - Department of Economics

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

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

Luis Fernando Araujo (Contact Author)

Michigan State University - Department of Economics ( email )

101 Marshall Hall
East Lansing, MI 48824
United States
517-355-7583 (Phone)
517-432-1068 (Fax)

Bernardo Guimarães

London School of Economics & Political Science (LSE) - Department of Economics ( email )

Houghton Street
London WC2A 2AE
United Kingdom
+44 (0)20 7955 7502 (Phone)

HOME PAGE: http://personal.lse.ac.uk/guimarae

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
5
Abstract Views
375
PlumX Metrics