Imperfect monitoring is necessary for essentiality of money
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Fiat money, an intrinsically useless object, is said to be essential if some good allocations are achieved with it but not without it. In this paper, it is shown that imperfect monitoring is necessary for money to be essential in a large class of economic environments. This provides a guide for the construction of models in which monetary trade achieves good outcomes.
KeywordsMoney Imperfect monitoring Essentiality of money
JEL ClassificationC73 D82 E40
I am deeply indebted to Neil Wallace for his guidance and encouragement. I would like to thank an anonymous referee, the editor, Kalyan Chatterjee, Tetsuya Hoshino, James Jordan, and Anthony Kwasnica for their helpful comments. Any remaining errors are of course my responsibility.
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