The essentiality of money in environments with centralized trade |
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| Authors: | Luis Araujo Braz Camargo Raoul Minetti Daniela Puzzello |
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| Institution: | 1. Michigan State University, Department of Economics, East Lansing, MI 48824-1038, United States;2. Sao Paulo School of Economics—FGV, Sao Paulo, SP 01332-000, Brazil;3. Indiana University, Department of Economics, Bloomington, IN 47405-7104, United States |
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| Abstract: | Lagos and Wright (2005) introduced an influential model of monetary exchange in which trade alternates between centralized and decentralized markets and money is essential. A limitation of their model and of the literature that follows is that they do not provide a microfoundation for the process of exchange in the centralized market. In this paper, we show that how one models exchange in the centralized market matters for the essentiality of money by describing the centralized market as a strategic market game and studying conditions under which money is essential. |
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