Price setting, price dispersion, and the value of money: or, the law of two prices
AbstractWe study models that combine search, monetary exchange, price posting by sellers, and buyers with preferences that differ across random meetings - say, because sellers in different meetings produce different varieties of the same good. We show how these features interact to influence the price level (i.e., the value of money) and price dispersion. First, price-posting equilibria exist with valued fiat currency, which is not true in the standard model. Second, although both are possible, price dispersion is more common than a single price. Third, perhaps surprisingly, we prove generically there cannot be more than two prices in equilibrium.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Monetary Economics.
Volume (Year): 51 (2004)
Issue (Month): 8 (November)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/505566
Other versions of this item:
- Elisabeth Curtis & Randall Wright, 2002. "Price setting, price dispersion, and the value of money - or - The law of two prices," Working Paper 0209, Federal Reserve Bank of Cleveland.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Albrecht, James & Axell, Bo, 1983.
"An Equilibrium Model of Search Unemployment,"
83-10, C.V. Starr Center for Applied Economics, New York University.
- Miquel Faig, 2001.
"A Search Theory of Money and Commerce with Neoclassical Production,"
faig-01-01, University of Toronto, Department of Economics.
- Miquel Faig, 2001. "A search theory of money and commerce with Neoclassical production," Economics Working Papers 567, Department of Economics and Business, Universitat Pompeu Fabra.
- Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-54, August.
- Peter Diamond, 1985.
"Consumer Differences and Prices in a Search Model,"
404, Massachusetts Institute of Technology (MIT), Department of Economics.
- Wallace, Neil, 2001. "Whither Monetary Economics?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 847-69, November.
- Miguel Molico, 2006. "The Distribution Of Money And Prices In Search Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(3), pages 701-722, 08.
- Nobuhiro Kiyotaki & Randall Wright, 1989.
"A contribution to the pure theory of money,"
123, Federal Reserve Bank of Minneapolis.
- Jafarey, Saqib & Masters, Adrian, 2003. " Output, Prices, and the Velocity of Money in Search Equilibrium," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(6), pages 871-88, December.
- Edward J. Green & Ruilin Zhou, .
""A Rudimentary Model of Search with Divisible Money and Prices'',"
CARESS Working Papres
95-17, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
- Edward J. Green & Ruilin Zhou, . "A Rudimentary Model of Search with Divisible Money and Prices," Penn CARESS Working Papers 2772f94306e08ef7292945588, Penn Economics Department.
- Camera, Gabriele & Winkler, Johannes, 2003. "International monetary trade and the law of one price," Journal of Monetary Economics, Elsevier, vol. 50(7), pages 1531-1553, October.
- Ruilin Zhou, 1996.
"Individual and Aggregate Real Balances in a Random Matching Model,"
GE, Growth, Math methods
9612001, EconWPA, revised 23 Dec 1996.
- Zhou, Ruilin, 1999. "Individual and Aggregate Real Balances in a Random-Matching Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 1009-38, November.
- Ruilin Zhou, 1996. "Individual and aggregate real balances in a random matching model," Staff Report 222, Federal Reserve Bank of Minneapolis.
- Trejos, Alberto & Wright, Randall, 1995. "Search, Bargaining, Money, and Prices," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 118-41, February.
- Kocherlakota, Narayana R., 1998.
"Money Is Memory,"
Journal of Economic Theory,
Elsevier, vol. 81(2), pages 232-251, August.
- Shi Shougong, 1995.
"Money and Prices: A Model of Search and Bargaining,"
Journal of Economic Theory,
Elsevier, vol. 67(2), pages 467-496, December.
- Shouyong Shi, 1995. "Money and Prices: A Model of Search and Bargaining," Working Papers 916, Queen's University, Department of Economics.
- Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
- Camera, G. & Corbae, D., 1998.
"Money and Price Dispersion,"
98-03, University of Iowa, Department of Economics.
- Gaumont D. & Schindler M. & Wright R., 2005.
"“Alternative Theories of Wage Dispersion”,"
Working Papers ERMES
0505, ERMES, University Paris 2.
- Stephen D. Williamson & Randall Wright, 2010.
"New Monetarist Economics: methods,"
442, Federal Reserve Bank of Minneapolis.
- Guillaume Rocheteau & Christopher Waller, 2005.
"Bargaining and the value of money,"
0501, Federal Reserve Bank of Cleveland.
- Gaumont Damien & Schindler Martin & Wright Randall, 2006.
"Equilibrium Wage Dispersion: An Example,"
The B.E. Journal of Macroeconomics,
De Gruyter, vol. 6(2), pages 1-18, October.
- Huberto M. Ennis, 2005.
"Search, Money, and Inflation under Private Information,"
2005 Meeting Papers
135, Society for Economic Dynamics.
- Ennis, Huberto M., 2008. "Search, money, and inflation under private information," Journal of Economic Theory, Elsevier, vol. 138(1), pages 101-131, January.
- Huberto M. Ennis, 2004. "Search, money, and inflation under private information," Discussion Paper / Institute for Empirical Macroeconomics 142, Federal Reserve Bank of Minneapolis.
- Mei Dong & Janet Hua Jiang, 2011. "Money and Price Posting under Private Information," Working Papers 11-22, Bank of Canada.
- Julien, BenoI^t & Kennes, John & King, Ian, 2008. "Bidding for money," Journal of Economic Theory, Elsevier, vol. 142(1), pages 196-217, September.
- Williamson, Stephen D. & Wright, Randall, 2010.
"New Monetarist Economics: Models,"
21030, University Library of Munich, Germany.
- Benoit Julien & Richard Dutu, 2008. "Ex-ante production, directed search and indivisible money," Economics Bulletin, AccessEcon, vol. 5(7), pages 1-7.
- Benoit Julien & John Kennes & Ian King, 2006.
"Monetary Exchange with Multilateral Matching,"
2006 Meeting Papers
883, Society for Economic Dynamics.
- repec:ebl:ecbull:v:5:y:2008:i:7:p:1-7 is not listed on IDEAS
- International Monetary Fund, 2005. "Alternative Models of Wage Dispersion," IMF Working Papers 05/64, International Monetary Fund.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.