Money Creation in a Random Matching Model

Abstract

I study money creation in versions of the Trejos-Wright (1995) and Shi (1995) models with indivisible money and individual holdings bounded at two units. I work with the same class of policies as in Deviatov and Wallace (2001), who study money creation in that model. However, I consider an alternative notion of implementability–the ex ante pairwise core. I compute a set of numerical examples to determine whether money creation is beneficial. I find beneficial e?ects of money creation if individuals are su?ciently risk averse (obtain su?ciently high utility gains from trade) and impatient.inflation; Friedman rule; optimal monetary policy