Monetary general equilibrium with transaction costs |
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| Institution: | 1. Department of Process and Plant Technology, Brandenburg University of Technology (BTU) Cottbus-Senftenberg, Platz der Deutschen 1, 03046 Cottbus, Germany;2. Instituto de Nanociencia y Materiales de Aragón (INMA), CSIC-Universidad de Zaragoza, Zaragoza 50018, Spain;1. Department of Neurosurgery, Alfred Hospital, Melbourne, Australia;2. Department of Surgery, Monash University, Central Clinical School, Melbourne, Australia;3. Monash Vision Group, Faculty of Engineering, Monash University, Melbourne, Australia;4. Monash Institute of Medical Engineering, Monash University, Melbourne, Australia;5. Department of Epidemiology and Preventive Medicine, Monash University, Melbourne, Australia;6. Department of Electrical and Computer Systems Engineering, Faculty of Engineering, Monash University, Melbourne, Australia;7. F. Edward Hébert School of Medicine, Uniformed Services University of the Health Sciences, Bethesda, USA;1. National-Local Joint Engineering Laboratory for Energy Conservation in Chemical Process Integration and Resources Utilization, School of Chemical Engineering and Technology, Hebei University of Technology, Tianjin 300132, PR China;2. Key Laboratory of Pulp and Paper Science &Technology of Ministry of Education, Qilu University of Technology (Shandong Academy of Sciences), Jinan 250353, PR China |
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| Abstract: | Commodity money arises endogenously in a general equilibrium model with separate budget constraints for each transaction. Transaction costs imply differing bid and ask (selling and buying) prices. The most liquid good—with the smallest proportionate bid/ask spread—becomes commodity money. General equilibrium may not be Pareto efficient. If zero-transaction-cost money is available then the equilibrium allocation is Pareto efficient. Fiat money is an intrinsically worthless instrument. Its positive price comes from acceptability in paying taxes, and its use as a medium of exchange is based on low transaction cost. |
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