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The University of Southampton
EconomicsPart of Economic, Social and Political Science

1704 Liquid Accounts as a Store of Value and Excess Capacity (Alessandro Mennuni)

Author: Alessandro Mennuni (University of Southampton)

Paper number 1704


This paper introduces a macroeconomic framework where money emerges endogenously as a store of value because of a search friction in the goods market. With the novel microfoundation, monetary equilibria are robust to large amounts of credit. The model also implies a link between the value of money and the matching between the demand and supply of goods. As a result, the implications are different than those of existing models. In particular, the model offers an original interpretation of recessions which accounts for how monetary holdings and excess production capacity vary over the business cycle.


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