RIEB Discussion Paper Series No.2019-21

Title

Efficiency of Monetary Exchange with Divisible Fiat Money: An Experimental Approach

Abstract

In this paper, we investigate a search model with divisible fiat money in a laboratory setting where transaction prices are endogenously determined. In the model, there exist welfare-ranked multiple stationary monetary equilibria and gift-giving equilibria. We find that endogenizing transaction prices enhanced the coordination of subjects through monetary exchange and deteriorated it through gift-giving. In other words, the subjects endogenously reduced the trade friction of monetary exchanges. We also compare our experimental results with those in search models with exogenously given transaction prices.

Keywords

Real indeterminacy, Random matching, Divisible money, Experiment, Equilibrium selection, Gift-giving

JEL Classification

C91, C92, D51, D83, E40

Inquiries

Kazuya KAMIYA
Research Institute for Economics and Business Administration
Kobe University
Rokkodai-cho, Nada-ku, Kobe
657-8501 Japan
Phone: +81-78-803-7036
FAX: +81-78-803-7059

Hajime KOBAYASHI
Faculty of Economics, Kansai University

Tatsuhiro SHICHIJO
School of Economics, Osaka Prefecture University

Takashi SHIMIZU
Graduate School of Economics, Kobe University