Abstract
We analyze whether or not money can be circulated as a purely transaction medium in the search theory. We obtain the following result: unless the role of a store of value added to the function of money, money does not circulate and the economy degenerates into a barter economy.
Highlights
IntroductionThere exist two main functions of money: transaction demand for clearing and demand for store of value
The paper explores the function of money in the search model
We obtain the following result: unless the role of a store of value added to the function of money, money does not circulate and the economy degenerates into a barter economy
Summary
There exist two main functions of money: transaction demand for clearing and demand for store of value. Kiyotaki and Wright [1], which is the seminal work on the search money model, insist that money can be circulated solely by the motive of transaction even though it does not operate as a store of value. The visiting opportunities of exchange in a barter economy are more frequent those in a monetary economy This leads us to the following hypothesis: unless money possesses both of the above properties, it is unable to circulate.
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