- Published: September 2011
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On the Emergence of Money. Edition No. 1
- Published: November 2009
- 108 Pages
- VDM Publishing House
A fundamental question in monetary theory is, why does money circulate? The search-cost model of Kiyotaki and Wright proves that objects gain value by acting as media of exchange. It thus provides a rationale for the existence of money, explaining why it is not abolished once in circulation. However, it cannot reveal how the historically prevalent equilibrium of nobody accepting money was surmounted, or how out-of-equilibrium dynamics evolve. This work exhibits the pure emergence of money from a setting where everybody refuses goods of no use to them, yet acts with a `trembling hand.' Artificial society simulations of a model built in the spirit of Epstein and Axtell show, a set of boundedly rational agents who dynamically update individual expectations through strictly local interactions is sufficient for the onset of money. Speculation arises, too, though the dynamics show it requires time to evolve. This book contains also a survey of the search-cost literature and is addressed to both monetary theorists as well as researchers and policy makers interested in analysis by agent-based simulation.
Hermann Elendner studied computer science and economics at the Vienna University of Technology. His thesis, basis of this book, won the Franz Weninger Award. He holds a second master's degree from the Vienna University of Economics and Business and is currently finishing his PhD in finance at the Vienna Graduate School of Finance (VGSF).
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