A Model of Fiat Money and Barter
Working Paper 4919
DOI 10.3386/w4919
Issue Date
We present an infinite horizon model with capital in which fiat money and barter are two competing means of payment. Fiat money has value because barter is limited by the extent of a double coincidence of wants. The pattern of exchange generally involves both money and barter. We find that the Chicago rule is sufficient for Pareto efficiency, while nominal interest smoothing is necessary. For a specific utility function we provide a complete characterization of the patterns of exchange and calculate the range of inflation rates over which a stationary monetary equilibrium exists.
Published Versions
Journal of Economic Theory, vol. 68, no. 1, pp. 111-132, January 1996. citation courtesy of