Money, payments, and liquidity

A new edition of a book presenting a unified framework for studying the role of money and liquid assets in the economy, revised and updated. In Money, Payments, and Liquidity, Guillaume Rocheteau and Ed Nosal provide a comprehensive investigation into the economics of money, liquidity, and payments by explicitly modeling the mechanics of trade and its various frictions (including search, private information, and limited commitment). Adopting the last generation of the New Monetarist framework developed by Ricardo Lagos and Randall Wright, among others, Nosal and Rocheteau provide a dynamic general equilibrium framework to examine the frictions in the economy that make money and liquid assets play a useful role in trade. They discuss such topics as cashless economies; the properties of an asset that make it suitable to be used as a medium of exchange; the optimal monetary policy and the cost of inflation; the coexistence of money and credit; and the relationships among liquidity, asset prices, monetary policy; and the different measures of liquidity in over-the-counter markets. The second edition has been revised to reflect recent progress in the New Monetarist approach to payments and liquidity. Rocheteau and Nosal have added three new chapters: on unemployment and payments, on asset price dynamics and bubbles, and on crashes and recoveries in over-the-counter markets. The chapter on the role of money has been entirely rewritten, adopting a mechanism design approach. Other chapters have been revised and updated, with new material on credit economies under limited commitment, open-market operations and liquidity traps, and the limited pledgeability of assets under informational frictions.

Intro; Contents; Acknowledgments; Preface to the Second Edition; General Introduction; 1 The Basic Environment; 1.1 Benchmark Model; 1.2 Variants of the Benchmark Model; 1.3 Further Readings; 2 Pure Credit Economies; 2.1 Credit with Commitment; 2.2 Credit Default; 2.3 Credit with Public Record-Keeping; 2.4 Credit Equilibria with Endogenous Debt Limits; 2.5 Dynamic Credit Equilibria; 2.6 Strategic Default in Equilibrium; 2.7 Credit with Reputation; 2.8 Further Readings; 3 Pure Currency Economies; 3.1 A Model of Divisible Money; 3.1.1 Steady-State Equilibria; 3.1.2 Nonstationary Equilibria

3.1.3 Sunspot Equilibria3.2 Alternative Bargaining Solutions; 3.2.1 Bargaining Set; 3.2.2 The Nash Solution; 3.2.3 The Proportional Solution; 3.3 Walrasian Price Taking; 3.4 Competitive Price Posting; 3.5 Further Readings; 4 The Role of Money; 4.1 A Mechanism Design Approach to Monetary Exchange; 4.2 Efficient Allocations with Indivisible Money; 4.3 Two-Sided Match Heterogeneity; 4.3.1 The Barter Economy; 4.3.2 The Monetary Economy; 4.4 Further Readings; 5 Properties of Money; 5.1 Divisibility of Money; 5.1.1 Currency Shortage; 5.1.2 Indivisible Money and Lotteries; 5.1.3 Divisible Money

5.2 Por…