Bank of Canada staff working papers provide a forum for staff to publish work-in-progress research independently from the Bank’s Governing Council. This research may support or challenge prevailing policy orthodoxy. Therefore, the views expressed in this paper are solely those of the authors and may differ from official Bank of Canada views. No responsibility for them should be attributed to the Bank. DOI: https://doi.org/10.34989/swp-2023-39 | ISSN 1701-9397 ©2023 Bank of Canada Staff Working Paper/Document de travail du personnel—2023-39 Last updated: July 28, 2023 Is Money Essential? An Experimental Approach by Janet Hua Jiang,1 Peter Norman,2 Daniela Puzzello,3 Bruno Sultanum4 and Randall Wright5 1Banking and Payments Department Bank of Canada jjiang@bankofcanada.ca 2University of North Carolina normanp@email.unc.edu 3Indiana University dpuzzell@indiana.edu 4Federal Reserve Bank of Richmond bruno@sultanum.com 5Zhejiang University and University of Wisconsin randall.wright@wisc.edu i Acknowledgements We thank for their input Estonia Black, Tim Cason, John Duffy, Frank Heinemann, Luba Petersen, Shyam Sunder and participants at presentations at the University of Arkansas, Virginia Commonwealth University, Nanyang Technological University, Bank of Canada, the 2021 Search and Matching in Macro and Finance virtual seminar series, the 2022 World Economic Science Association Conference, the 2022 Ostrom-Smith Workshop, the 2nd Editors-in-Chief Conference on Economics, the 2022 Canadian Economics Association Meetings, the 2022 Workshop on Theoretical and Experimental Macroeconomics, the December 2021 Richmond Federal Reserve CORE Monetary Conference, the New York Federal Reserve, the 2022 American Economic Association Annual Meeting, the Society for Experimental Finance 2022 Asia-Pacific Regional Conference, the 2022 Theory and Experiments in Monetary Economics Conference, the Simon Fraser University Workshop on Computational and Experimental Economics (in honour of Jasmina Arifovic), and the University of Minnesota Conference in Honor of Neil Wallace. We gratefully acknowledge funding from Indiana University and the Bank of Canada. Wright acknowledges support from the Ray B. Zemon Chair in Liquid Assets and the Kenneth Burdett Professorship in Search Theory and Applications at the University of Wisconsin. The views expressed in this paper are those of the authors and not necessarily those of the Federal Reserve Bank of Richmond or the Federal Reserve System. Also no responsibility should be attributed to the Bank of Canada. ii 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 recommen...
