Essays on money and information
Social norms and money . In an economy where there is no double coincidence of wants and no record-keeping of past transactions, money is usually seen as the only mechanism that can support exchange. In this paper we show that, as long as the population is finite and agents are sufficiently patient, a social norm establishing gift-exchange can substitute for money. However, for a given discount factor, population growth leads to the breakdown of the social norm. Additionally, increases in the degree of specialization in the economy can also eventually undermine the social norm equilibrium. By contrast, a monetary equilibrium exists independent of the population size or specialization. We conclude that, while social norms can support efficient exchange in economies with small populations and limited specialization, money is essential in economies without these features. Monetary equilibrium with decentralized trade and learning . We consider an environment where trade is decentralized and agents only obtain information about the state of the economy (the monetary regime) through private histories. We characterize the dynamics of the market under different regimes and show that changes in the degree of information transmission in the economy reduce the bank's willingness to choose a soft monetary regime. We also study the intertemporal consistency of the bank's behavior. We show that in order for patient banks to choose a tight regime they must not only be concerned with building a good reputation, but also with maintaining their good reputation by behaving in such a way as to differentiate themselves from impatient banks.
|Year of publication:||
|Authors:||Araujo, Luis Fernando|
|Type of publication:||Other|
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