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Liquidity, Bargaining, and Multiple Equilibria in a Search Monetary Model

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  • Shouyong Shi

    ()
    (Department of Economics, Indiana University)

Abstract

In this paper I construct a search monetary model with capital accumulation where money and goods are both divisible. Agents in matches determine the terms of trade through a sequential bargaining process and they face trading restrictions that require the quantity of money traded not to exceed what the buyer brings into the match. I show that sellers¡¯ share of the match surplus decreases with the severity of the trading restrictions. Such endogenous surplus shares generate multiple, self-fulfilling monetary steady states. When liquidity is interpreted as the number of transactions, the steady state with higher aggregate activities has higher liquidity. In both steady states, an increase in the money growth rate increases aggregate output and consumption by increasing the number of matches.

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Bibliographic Info

Article provided by Society for AEF in its journal Annals of Economics and Finance.

Volume (Year): 2 (2001)
Issue (Month): 2 (November)
Pages: 325-351

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Handle: RePEc:cuf:journl:y:2001:v:2:i:2:p:325-351

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Keywords: Money Search; Capital; Liquidity; Multiplicity; Bargaining;

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Cited by:
  1. Weimin Wang & Shouyong Shi, 2006. "The Variability of Velocity of Money in a Search Model," Working Papers tecipa-190, University of Toronto, Department of Economics.
  2. Shi, Shouyong, 2008. "Efficiency improvement from restricting the liquidity of nominal bonds," Journal of Monetary Economics, Elsevier, Elsevier, vol. 55(6), pages 1025-1037, September.
  3. Aleksander Berentsen & Guillaume Rocheteau, . "On the Efficiency of Monetary Exchange:How Divisibility of Money Matters," IEW - Working Papers 101, Institute for Empirical Research in Economics - University of Zurich.
  4. Wang, Gaowang, 2011. "Time Preference and Interest Rate in a dynamic general Equilibrium Model," MPRA Paper 34063, University Library of Munich, Germany.
  5. Aleksander Berentsen & Guillaume Rocheteau, 2002. "Money in Bilateral Trade," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), Swiss Society of Economics and Statistics (SSES), vol. 138(IV), pages 489-506, December.
  6. Heng-fu Zou, 2011. "Foreign Asset Accumulation and Macroeconomic Policies in a Model of Mercantilism," CEMA Working Papers, China Economics and Management Academy, Central University of Finance and Economics 432, China Economics and Management Academy, Central University of Finance and Economics.
  7. Christian Korth & Stefan Napel, 2009. "Fairness, Price Stickiness, and History Dependence in Decentralized Trade," Working Papers, Bavarian Graduate Program in Economics (BGPE) 068, Bavarian Graduate Program in Economics (BGPE).
  8. Martin Menner, 2011. ""Gesell Tax" and Efficiency of Monetary Exchange," Working Papers. Serie AD, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) 2011-26, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  9. Shouyong Shi, 2002. "Nominal Bonds and Interest Rates: The Case of One-Period Bonds," Working Papers shouyong-03-03, University of Toronto, Department of Economics.
  10. Denis Nitikin & Chunli Shen & Qian Wang & Heng-fu Zou, 2011. "Land Taxation in China: Assessment of Prospects for Politically and Economically Sustainable Reform," CEMA Working Papers, China Economics and Management Academy, Central University of Finance and Economics 431, China Economics and Management Academy, Central University of Finance and Economics.
  11. Wang, Gaowang & Zou, Heng-fu, 2011. "Mercantilism, Foreign Asset Accumulation and Macroeconomic Policy," MPRA Paper 34519, University Library of Munich, Germany.

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