Monetary Trading: An Optimal Exchange System

Monetary Trading: An Optimal Exchange System∗

We show that monetary trading is simple, self-enforcing, symmetric, and irreducible in a natural framework. Furthermore, we will show that the utility for each economic agent is at least as big under the monetary system as under any other simple, self-enforcing, symmetric, and irreducible trading system of the same complexity. Thus, we rationalize the monetary nature of real-world trade as bein...

Trading favors: optimal exchange and forgiveness

Monetary Emissions Trading Mechanisms

Emissions trading mechanisms have been proposed, and in some cases implemented, as a tool to reduce pollution. We argue that emission-trading mechanisms share some similarities with monetary mechanisms. Both attempt to implement desirable allocations under various frictions, including risk and private information. In addition, implementation relies on the issue and trading of objects whose valu...

The Optimal Monetary Policy Response to Exchange Rate Misalignments∗

A common feature of exchange rate misalignments is that they produce a divergence between traded and non-traded goods sectors, which appears to pose a dilemma for policy makers. In this paper we develop a small open economy model which features traded and non-traded goods sectors with which to assess the extent to which monetary policy should respond to exchange rate misalignments. To do so we ...

Anonymous Markets and Monetary Trading∗

We study infinite-horizon monetary economies characterized by trading frictions that originate from random pairwise meetings, and commitment and enforcement limitations. We prove that introducing occasional trade in “centralized markets” opens the door to an informal enforcement scheme that sustains a non-monetary efficient allocation. All is required is that trading partners’ be patient and th...