Fiat Money in a Pairwise-Trading, Multi-Good, Overlapping Generations Model

Abstract

This paper studies a stationary, pure exchange overlapping generations model with a particular kind of randomly generated pairwise trading pattern. This model, in contrast to the usual overlapping generations models, has the following implications. As regards existence, it is shown that a standard boundary condition on preferences is sufficient to imply the existence of a stationary monetary equilibrium. As regards properties of the equilibrium, for some specifications, my model has a stationary equilibrium in which claims bear a higher rate of return than fiat money. It is also proved that this stationary equilibrium is conditionally Pareto optimal.