Characterization of the Instrumental Value of Money as a Medium of Exchange, as a Property Within the Sidrauski : Money in Utility Model
AuthorSalazar Vesga, Natalia
The Sidrauski: Money in Utility model, represents the decision-making process of an agent facing a choice on how to allocate his resources between consumption and money holdings. To do so, the individual needs to take into account not only the present value of the assets owned but also the opportunity cost of transferring them into the future by moving his endowments across the inter-temporal setting employing savings or investments. Despite being a useful model to analyze the consequences of the individual preferences in the general equilibrium, it does an oversimplified inclusion of the monetary assets which fails to understand their complexity. In this document, a possibly more comprehensive way of including money is explored, in such a way, that it accomplishes to capture the instrumental value of this asset instead of assuming it as intrinsic. The conclusions under this new setting are further analyzed, to see how the general equilibrium outcomes are affected and the consequences that this has on the macroeconomic outcome when using the original Sidrauski model as a benchmark.