The monetary character of trade, use of a common medium of exchange, is shown to be an outcome of an economic general equilibrium. Monetary structure can be derived from price theory in a modified Arrow-Debreu model. Two constructs are added: transaction costs and market segmentation in trading...

Existence and efficiency of general equilibrium with commodity money is investigated in an economy where N commodities are traded at N(N-1)/2 commodity-pairwise trading posts. Trade is a resource-using activity recovering transaction costs through the spread between bid (wholesale) and ask...

The microeconomic foundation of the theory of money has long represented a puzzle to economic theory. Why is there Money? derives the foundations of monetary theory from advanced price theory in a mathematically precise family of trading post models.

This paper develops and tests a new set of stochastic implications of optimal consumption behavior in the presence of borrowing constraints. In a departure from previous models, the theory shows that liquidity constraints imply a distinctive intertemporal relationship between durable and...

In an economy with commodity-pairwise trading posts and transaction costs, commodity money is endogenously determined in general equilibrium. Absent double coincidence of wants, the low-transaction cost commodity (with the narrowest proportional bid/ask price spread) becomes the common medium of...