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Working Paper

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

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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.
Topics
Monetary policy
01.19.2011ISSN 2573-7953 WP 11-04DOI 10.26509/frbc-wp-201104
Keywords money, capital, pairwise trades, rate-of-return dominance
JEL Classification Codes D82, D83, E40, E50

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

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