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A Rudimentary Random-Matching Model with Divisible Money and Prices

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  • Green, Edward J.
  • Zhou, Ruilin

Abstract

We consider a version of Kiyotaki and Wright's monetary search model in which agents can hold arbitrary amounts of divisible money. A continuum of stationary equilibria, indexed by the aggregate real-money stock, exist with all trading occurring at a single price. There is always a maximum level of the real money stock consistent with existence of such an equilibrium. In the limit as trading becomes faster relative to discounting, any real money stock becomes feasible in such an equilibrium. In contrast to the original Kiyotaki-Wright model, higher equilibrium real money stocks unambiguously correspond to higher welfare.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 81 (1998)
Issue (Month): 2 (August)
Pages: 252-271

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Handle: RePEc:eee:jetheo:v:81:y:1998:i:2:p:252-271

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Web page: http://www.elsevier.com/locate/inca/622869

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  1. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 97(4), pages 927-54, August.
  2. Shi Shougong, 1995. "Money and Prices: A Model of Search and Bargaining," Journal of Economic Theory, Elsevier, Elsevier, vol. 67(2), pages 467-496, December.
  3. Rao Aiyagari, S. & Wallace, Neil & Wright, Randall, 1996. "Coexistence of money and interest-bearing securities," Journal of Monetary Economics, Elsevier, Elsevier, vol. 37(3), pages 397-419, June.
  4. William Vickrey, 1961. "Counterspeculation, Auctions, And Competitive Sealed Tenders," Journal of Finance, American Finance Association, American Finance Association, vol. 16(1), pages 8-37, 03.
  5. Diamond, Peter & Yellin, Joel, 1990. "Inventories and Money Holdings in a Search Economy," Econometrica, Econometric Society, Econometric Society, vol. 58(4), pages 929-50, July.
  6. Trejos, Alberto & Wright, Randall, 1995. "Search, Bargaining, Money, and Prices," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 103(1), pages 118-41, February.
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