Chapter 7 Overlapping generations models with money and transactions costs

This chapter discusses overlapping generation's (OG) models with money and transaction costs. Models are used with an infinite number of goods and agents. The chapter discusses money-in-the-utility function (MIUF) models and the usefulness of OG models for monetary theory. OG model gives the best available model of fiat money as it integrates the valuation of an intrinsically useless piece of paper that is inconvertible into real goods with the rest of value theory. Any model of fiat money confronts the intrinsic uselessness of the pieces of paper called fiat money and their postulated inconvertibility. The chapter presents the principal conclusions of this approach for both normative and positive monetary theory and evaluates what happens to these conclusions when various types of transactions costs are introduced into the model. The chapter discusses problems that are important in evaluating the robustness of the normative and positive conclusions for monetary economics.