Is Money Essential? An Experimental Approach

Janet Hua Jiang, Peter Norman, Daniela Puzzello, Bruno Sultanum and Randall Wright

Staff Working Papers from Bank of Canada

Abstract: Monetary exchange is deemed essential when better incentive-compatible outcomes can be achieved with money than without it. We study essentiality both theoretically and experimentally, using finite-horizon monetary models that are naturally suited to the lab. We also follow the mechanism design approach and study the effects of strategy recommendations, both when they are incentive-compatible and when they are not. Results show that output and welfare are significantly enhanced by fiat currency when monetary equilibrium exists. Also, recommendations help if they are incentive-compatible but not much otherwise. Sometimes money is used when it should not be and we investigate why, using surveys and measures of social preferences.

Keywords: Central bank research; Economic models (search for similar items in EconPapers)
JEL-codes: C92 E4 E5 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2023-07
New Economics Papers: this item is included in nep-ban, nep-cba, nep-des, nep-exp, nep-fdg, nep-mon and nep-pay
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Related works:
Journal Article: Is Money Essential? An Experimental Approach (2024)
Working Paper: Is Money Essential? An Experimental Approach (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:23-39

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