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Article
Information, Learning and Stability of Fiat Money
Journal of Monetary Economics (2006)
  • Luis Araujo, Michigan State University
Abstract
We analyze the stability of monetary regimes in an economy where fiat money is endogenously created by the government, information about its value is imperfect, and learning is decentralized. We show that monetary stability depends crucially on the speed of information transmission in the economy. Our model generates a dynamic on the acceptability of fiat money that resembles historical accounts of the rise and eventual collapse of overissued paper money. It also provides an explanation of the fact that, despite its obvious advantages, the widespread use of fiat money is only a recent development.
Keywords
  • Monetary Stability,
  • Endogenous Money,
  • Decentralized Trade,
  • Learning
Disciplines
Publication Date
October, 2006
Citation Information
Luis Araujo. "Information, Learning and Stability of Fiat Money" Journal of Monetary Economics Vol. 53 Iss. 7 (2006)
Available at: http://works.bepress.com/luis_araujo/3/