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Working Paper

On the Coexistence of Money and Higher-Return Assets and its Social Role

This paper adopts mechanism design to tackle the central issue in monetary theory, namely, the coexistence of money and higher-return assets. I describe an economy with pairwise meetings, where fiat money and risk-free capital compete as means of payment. Whenever fiat money has an essential role, any constrained-efficient allocation is such that capital commands a higher rate of return than fiat money.

Suggested Citation

Rocheteau, Guillaume. 2011. “On the Coexistence of Money and Higher-Return Assets and its Social Role.” Federal Reserve Bank of Cleveland, Working Paper No. 11-04. https://doi.org/10.26509/frbc-wp-201104