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Inside Money, Organized Markets, And Specialization

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  • LI, YITING

Abstract

We consider an economy in which people choose between a random-matching sector and organized markets absent double-coincidence problems. Merchants in the organized markets issue bills of exchange. Pareto-ranked multiple equilibria exist with the extent of the market and circulation of private liabilities endogenously determined. If trade frictions are moderate, bills circulate as a general medium of exchange, and the level of specialization is higher relative to barter. In this case, higher inside liquidity is accompanied by more specialization. When all transactions take place in the organized markets, trading risk vanishes and the economy achieves complete specialization.

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Bibliographic Info

Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 11 (2007)
Issue (Month): 03 (June)
Pages: 388-404

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Handle: RePEc:cup:macdyn:v:11:y:2007:i:03:p:388-404_06

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Cited by:
  1. Williamson, Stephen D. & Wright, Randall, 2010. "New Monetarist Economics: Models," MPRA Paper 21030, University Library of Munich, Germany.

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