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THE EMERGENCE OF MONEY: A DYNAMIC ANALYSIS

Published online by Cambridge University Press:  18 December 2017

Maurizio Iacopetta
Maurizio Iacopetta*
Affiliation:
SKEMA Business School, Université Côte d'Azur (GREDEG) and OFCE, Sciences-Po Paris
*
Address correspondence to: Maurizio Iacopetta, SKEMA Business School, 60 Rue Fedor Dostoievski, 06902 Valbonne, France; e-mail: maurizio.iacopetta@skema.edu
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Abstract

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This paper studies the role of liquidity in triggering the emergence of money in a Kiyotaki-Wright economy. A novel method computes the dynamic Nash equilibria of the economy by setting up an iteration of the agents' profile of (pure) strategies and of the distribution of commodities across agents. The analysis shows that the evolving state of liquidity can spark the acceptance of a high-cost-storage commodity as money or cause the disappearance of a commodity money. It also reveals the existence of multiple dynamic equilibria with pure strategies. Several simulations clarify how history and the coordination of beliefs matter for the selection of a particular equilibrium.

Keywords

Speculative StrategyDynamic Nash EquilibriumLiquidity Differential

Information

Type
Articles
Information
Macroeconomic Dynamics , Volume 23 , Issue 7 , October 2019, pp. 2573 - 2596
Copyright
Copyright © Cambridge University Press 2017 

Footnotes

I am grateful to Federico Bonetto for his help at several stages of the paper. Two anonymous Referees, and an anonymous Associate Editor of this journal gave me valuable suggestions on how to clarify the analysis and to simplify the exposition. I wish also to thank Zakaria Babutsidze, Nobuyuki Hanaki, and seminar and conference participants at the 2016 Meetings of the Society for Computational Economics Conference (Bordeaux), Luiss University (Rome), and University of Göttingen for comments. All remaining errors are mine.

References

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