Asymmetric Information and Demand for Money in an Overlapping Generations Economy

This paper studies a pure exchange overlapping generations economy in which agents have asymmetric information pertaining to their income realizations. Such an information asymmetry introduces a role for fiat money that would otherwise be absent. This information asymmetry can also drastically alter the equilibrium properties of the analogous model with perfect information. In general, the more severe the information asymmetry, the greater the demand for fiat money.