Working Paper
Information disclosure and exchange media
Abstract: When commitment is lacking, intertemporal trade is facilitated with the use of exchange media?interpreted broadly to include monetary and collateral assets. We study the properties of a model commonly used to motivate monetary exchange, extended to include a physical asset whose expected short-run return is subject to a news shock, but whose expected long-run return is stable. The nondisclosure of news enhances the asset?s property as an exchange medium, and generally improves social welfare. When a nondisclosure policy is infeasible, the framework admits a role for government debt, including fiat money. When lump-sum taxation is not permitted, fiat money may still improve welfare?but only if its circulation is supported by a cash-in-advance constraint.>
https://doi.org/10.20955/wp.2012.012
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Provider: Federal Reserve Bank of St. Louis
Part of Series: Working Papers
Publication Date: 2012
Number: 2012-012