A probabilistic version of lump-sum money creation is studied in a random matching model with indivisible money and individual holdings bounded at 2 units. Sufficient conditions are obtained for an ex ante optimum from among implementable steady states to involve lump-sum creation of money. The role of that creation is to change the distribution of money holdings to permit more trade to occur. Beneficial money creation is impossible in a version with a 1 unit upper bound on individual holdings, but can almost certainly happen for all higher bounds.
Abraham, Arpad / Carceles-Poveda , Eva / Cavalcanti, Tiago / Kambourov, Gueorgui / Lambertini, Luisa / Ruhl, Kim / Tavares, Jose
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Another Example in which Lump-sum Money Creation is Beneficial
1Penn State University, deviatov@psu.edu
2Penn State University, neilw@psu.edu
Citation Information: Advances in Macroeconomics. Volume 1, Issue 1, Pages –, ISSN (Online) 1534-6013, DOI: 10.2202/1534-6013.1001, February 2001
Publication History:
- Published Online:
- 2001-02-27
Keywords: inflation; welfare; matching model
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