Learning to Use a Perishable Good as Money

Abstract

In this paper, a variant of Kiyotaki and Wright’s model of emergence of money is investigated. In the model, each good has different durability rather than storage cost as in Kiyotaki and Wright’s model. Two goods are infinitely durable but one is not durable. With certain conditions, non-durable good can be money as a medium of exchange. But equilibrium condition may be sensitive to the time evolution of the distribution of goods that each agent holds in its inventory. We test, with several learning models using different level of information, whether or not the steady state in this economy can be attainable if the distribution of goods is far from the steady state distribution. Belief learning with full information outperforms the other models. The steady state equilibrium is never attained by belief learning with partial information. A few agents learn to use non-durable good as money by reinforcement learning which does not use information about distribution of goods. It is surprising that providing partial information is rather detrimental for attaining emergence of a non-durable good money.