Monetary general equilibrium with transaction costs
نویسنده
چکیده
Commodity money arises endogenously in a general equilibrium model with separate budget constraints for each transaction. Transaction costs imply differing bid and ask (selling and buying) prices. The most liquid good—with the smallest proportionate bid/ask spread—becomes commodity money. General equilibrium may not be Pareto efficient. If zero-transaction-cost money is available then the equilibrium allocation is Pareto efficient. Fiat money is an intrinsically worthless instrument. Its positive price comes from acceptability in paying taxes, and its use as a medium of exchange is based on low transaction cost. © 2003 Published by Elsevier Science B.V. JEL classification: C62; E40; E42
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