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Money in Search Equilibrium, in Competitive Equilibrium, and in Competitive Search Equilibrium

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  • Guillaume Rocheteau
  • Randall Wright

Abstract

We compare three market structures for monetary economies: bargaining (search equilibrium); price taking (competitive equilibrium); and price posting (competitive search equilibrium). We also extend work on the microfoundations of money by allowing a general matching technology and entry. We study how equilibrium and the effects of policy depend on market structure. Under bargaining, trade and entry are both inefficient, and inflation implies first-order welfare losses. Under price taking, the Friedman rule solves the first inefficiency but not the second, and inflation may actually improve welfare. Under posting, the Friedman rule yields the first best, and inflation implies second-order welfare losses. Copyright The Econometric Society 2005.

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File URL: http://hdl.handle.net/10.1111/j.1468-0262.2005.00568.x
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Bibliographic Info

Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 73 (2005)
Issue (Month): 1 (01)
Pages: 175-202

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Handle: RePEc:ecm:emetrp:v:73:y:2005:i:1:p:175-202

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  1. Ricardo Lagos & Randall Wright, 2002. "Dynamics, cycles and sunspot equilibria in "genuinely dynamic, fundamentally disaggregative" models of money," Working Paper 0210, Federal Reserve Bank of Cleveland.
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  18. Acemoglu, Daron & Shimer, Robert, 1999. "Holdups and Efficiency with Search Frictions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 827-49, November.
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