Frankfurt Seminar in Macroeconomics
Speaker: Gabriele Camera, University of Basel
Title: A Repeated-Game Foundation of Monetary Equilibrium
Abstract: Money is considered essential if it supports allocations that theoretically outperform those based on rules of voluntary behavior. A common view, carefully formalized in Araujo (2004), asserts that money is essential in large economies; there, monetary trade is always an equilibrium, whereas voluntary behavior only supports autarky. This study challenges such a view: Monetary equilibrium does not generally exist independent of the economy’s size and cannot generally be supported in large societies unless some form of external enforcement is available. The common view rests on assuming that if money enters a transaction, then players cannot incur (in)voluntary losses.