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Money and the Gains from Trade

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  • Aleksander Berentsen

    (University of Basel)

  • Guillaume Rocheteau

    (Australian National University, Australia)

Abstract

This article studies the role of money in environments where in each meeting there is a double coincidence of real wants. Traders who meet at random finance their purchases through current production, the sale of divisible money or both. It is shown that in the absence of valued money if traders have asymmetric tastes for each other's good, they produce and exchange socially inefficient quantities. With valued money, however, traders exchange efficient quantities if the asymmetry of tastes is not too large. It is shown that the gains from trade in the monetary economy are strictly greater than those in the corresponding barter economy, that the Friedman rule holds, and that the allocation of resources in the monetary economy converges to the allocation in the barter economy as the growth rate of the money supply is increased. Copyright 2003 By The Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association

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Bibliographic Info

Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 44 (2003)
Issue (Month): 1 (February)
Pages: 263-297

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Handle: RePEc:ier:iecrev:v:44:y:2003:i:1:p:263-297

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Cited by:
  1. Aleksander Berentsen & Guillaume Rocheteau & Shouyong Shi, 2004. "Friedman meets Hosios: efficiency in search models of money," Working Paper 0408, Federal Reserve Bank of Cleveland.
  2. Ricardo Lagos & Randall Wright, 2004. "A unified framework for monetary theory and policy analysis," Staff Report 346, Federal Reserve Bank of Minneapolis.
  3. Nicola Amendola, 2008. "A "Double Coincidence" Search Model of Money," CEIS Research Paper 126, Tor Vergata University, CEIS, revised 18 Jul 2008.
  4. Brian Peterson & Shouyong Shi, 2004. "Money, price dispersion and welfare," Economic Theory, Springer, vol. 24(4), pages 907-932, November.
  5. Aleksander Berentsen & Guillaume Rocheteau, . "Money and Information," IEW - Working Papers 099, Institute for Empirical Research in Economics - University of Zurich.
  6. Guillaume Rocheteau & Peter Rupert & Randall Wright, 2008. "Inflation and Unemployment in General Equilibrium," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(4), pages 837-855, 03.
  7. Camera, Gabriele & Reed, Robert R. & Waller, Christopher J., 2003. "Can monetizing trade lower welfare? An example," Economics Letters, Elsevier, vol. 81(2), pages 179-186, November.
  8. Aleksander Berentsen & Guillaume Rocheteau, 2002. "Money in Bilateral Trade," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 138(IV), pages 489-506, December.
  9. Zeira, Joseph, 2005. "Money and the Size of Transactions," CEPR Discussion Papers 5010, C.E.P.R. Discussion Papers.
  10. Shouyong Shi, 2006. "A Microfoundation of Monetary Economics," Working Papers tecipa-211, University of Toronto, Department of Economics.
  11. Aleksander Berentsen & Alessandro Marchesiani & Christopher J. Waller, 2013. "Floor systems for implementing monetary policy: Some unpleasant fiscal arithmetic," ECON - Working Papers 121, Department of Economics - University of Zurich, revised Sep 2013.
  12. 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.

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