Seminario: Debt Enforcement and the Return on Money

Miércoles 27 de Noviembre, 17.00h.

Abstract

The rate-of-return-dominance puzzle asks why low-return assets, like fiat money, are used in actual economies given that risk-free higher-return assets are available. This paper presents a framework in which fiat money has value in equilibrium, even though a higher-return asset is available and there are neither restrictions nor transaction costs in using it. The use of money is associated with frictions underlying debt contracts. In an environment in which full enforcement is not feasible, the depreciation rate of an asset in which debts are denominated may affect the outside option for defaulters and thereby function as a commitment device. As a result, a monetary equilibrium in which money is dominated in rate of return exists.


Mariana Rojas Breu

Ph.D. in Economics, Université Bâle and Université Paris Quest Nanterre.
Associate professor, Université Paris Dauphine. Former positions at the Bank of France and the Federal Reserve Bank of St. Louis.
Her main fields of research and interest are Monetary Economics and Macroeconomics.



Lugar: Campus Alcorta: Av. Figueroa Alcorta 7350, Ciudad de Buenos Aires.
Contacto: Departamento de Economía

Organiza: Departamento de Economia