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The distribution of money and prices in an equilibrium with lotteries

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Author Info

  • Aleksander Berentsen

    ()

  • Gabriele Camera

    ()

  • Christopher Waller

    ()

Abstract

We construct a tractable ‘fundamental’ model of money with equilibrium heterogeneity in money balances and prices. We do so by considering randomized monetary trades in a standard search-theoretic model of money where agents can hold multiple units of indivisible ‘tokens’ and can offer lotteries on monetary transfers. By studying a simple trading pattern, we can analytically characterize the monetary distribution. Interestingly, such distributions match those observed in numerically simulated economies with fully divisible money and price heterogeneity. Copyright Springer-Verlag Berlin/Heidelberg 2004

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File URL: http://hdl.handle.net/10.1007/s00199-004-0485-5
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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 24 (2004)
Issue (Month): 4 (November)
Pages: 887-906

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Handle: RePEc:spr:joecth:v:24:y:2004:i:4:p:887-906

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Related research

Keywords: Lotteries; Money distribution; Price dispersion; Search.;

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References

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  1. Shouyong Shi, 1995. "Money and Prices: A Model of Search and Bargaining," Working Papers 916, Queen's University, Department of Economics.
  2. 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.
  3. Ruilin Zhou, 1996. "Individual and aggregate real balances in a random matching model," Staff Report 222, Federal Reserve Bank of Minneapolis.
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Citations

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Cited by:
  1. Aleksander Berentsen & Gabriele Camera & C hristopher W aller, 2005. "The Distribution Of Money Balances And The Nonneutrality Of Money," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(2), pages 465-487, 05.
  2. Antoine Martin & Cyril Monnet, 2009. "Monetary policy implementation frameworks: a comparative analysis," Working Papers 09-27, Federal Reserve Bank of Philadelphia.
  3. Aliprantis, C.D. & Camera, G. & Ruscitti, F., 2009. "Monetary equilibrium and the differentiability of the value function," Journal of Economic Dynamics and Control, Elsevier, vol. 33(2), pages 454-462, February.
  4. Kazuya Kamiya & Takashi Shimizu, 2007. "Existence of Equilibria in Matching Models of Money: A New Technique," Economic Theory, Springer, vol. 32(3), pages 447-460, September.
  5. Andre C. Silva, 2011. "Individual and Aggregate Money Demands," FEUNL Working Paper Series wp557, Universidade Nova de Lisboa, Faculdade de Economia.
  6. Aleksander Berentsen & Gabriele Camera, 2004. "Money, Credit, and Banking," 2004 Meeting Papers 473, Society for Economic Dynamics.
  7. Lotz, Sebastien, 2004. "Introducing a new currency: Government policy and prices," European Economic Review, Elsevier, vol. 48(5), pages 959-982, October.
  8. Lee, Manjong, 2010. "Carrying cost of money and real effects of denomination structure," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 326-337, March.
  9. Shouyong Shi, 2006. "A Microfoundation of Monetary Economics," Working Papers tecipa-211, University of Toronto, Department of Economics.
  10. Kim, Young Sik & Lee, Manjong, 2010. "A model of debit card as a means of payment," Journal of Economic Dynamics and Control, Elsevier, vol. 34(8), pages 1359-1368, August.

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