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Money, Payments, and Liquidity$
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Ed Nosal and Guillaume Rocheteau

Print publication date: 2011

Print ISBN-13: 9780262016285

Published to MIT Press Scholarship Online: August 2013

DOI: 10.7551/mitpress/9780262016285.001.0001

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The Basic Environment

The Basic Environment

(p.13) 1 The Basic Environment
Money, Payments, and Liquidity

Ed Nosal

Guillaume Rocheteau

The MIT Press

This chapter first explores the basic environment for society’s need for a media of exchange. It defines the standard Arrow–Debreu model economy and suggests that such a study of media exchange requires a departure from this model, which implies that the economy can achieve a Pareto-efficient allocation without needing factors like money or other financial institutions. The chapter then outlines the ingredients needed in developing a good model of media of exchange. Finally, it lays out the characteristics of the benchmark model that will be used throughout the book.

Keywords:   media of exchange, Arrow–Debreu model economy, Pareto-efficient allocation, day market, night market, competitive market

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