@article{200a5552a12e425e88e7d0e56d644d0a,
title = "Money and capital as competing media of exchange",
abstract = "We construct a model where capital competes with fiat money as a medium of exchange, and establish conditions on fundamentals under which fiat money can be both valued and socially beneficial. When the socially efficient stock of capital is too low to provide the liquidity agents need, they overaccumulate productive assets to use as media of exchange. When this is the case, there exists a monetary equilibrium that dominates the nonmonetary one in terms of welfare. Under the Friedman Rule, fiat money provides just enough liquidity so that agents choose to accumulate the same capital stock a social planner would.",
keywords = "Commodity money, Fiat money",
author = "Ricardo Lagos and Guillaume Rocheteau",
note = "Funding Information: We thank Randall Wright, three anonymous referees, and seminar participants at the Australian National University, University of Paris 2, University of Sydney, the 2003 Meetings of the Society for Economic Dynamics, and participants of the conference in Honor of Neil Wallace at Penn State. Lagos thanks the C.V. Starr Center for Applied Economics at NYU for financial support. Rocheteau has benefited from the Summer Research Grant scheme of the School of Economics of the Australian National University. The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Cleveland, the Federal Reserve Bank of Minneapolis or the Federal Reserve System.",
year = "2008",
month = sep,
doi = "10.1016/j.jet.2006.07.005",
language = "English (US)",
volume = "142",
pages = "247--258",
journal = "Journal of Economic Theory",
issn = "0022-0531",
publisher = "Academic Press Inc.",
number = "1",
}