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Money Creation in a Random Matching Model

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  • Alexei Deviatov

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    (New Economic School)

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    Abstract

    I study money creation in versions of the Trejos-Wright (1995) and Shi (1995) models with indivisible money and individual holdings bounded at two units. I work with the same class of policies as in Deviatov and Wallace (2001), who study money creation in that model. However, I consider an alternative notion of implementability–the ex ante pairwise core. I compute a set of numerical examples to determine whether money creation is beneficial. I find beneficial e?ects of money creation if individuals are su?ciently risk averse (obtain su?ciently high utility gains from trade) and impatient.

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    Bibliographic Info

    Paper provided by Center for Economic and Financial Research (CEFIR) in its series Working Papers with number w0081.

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    Length: 19 pages
    Date of creation: Sep 2006
    Date of revision:
    Handle: RePEc:cfr:cefirw:w0081

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    Keywords: inflation; Friedman rule; optimal monetary policy;

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    1. 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.
    2. Aleksander Berentsen & Gabriele Camera & Christopher Waller, . "The Distribution of Money Balances and the Non-Neutrality of Money," IEW - Working Papers 220, Institute for Empirical Research in Economics - University of Zurich.
    3. Robert E. Lucas, Jr. & Michael Woodford, 1993. "Real Effects of Monetary Shocks in an Economy with Sequential Purchases," NBER Working Papers 4250, National Bureau of Economic Research, Inc.
    4. 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, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(3), pages 701-722, 08.
    5. Joydeep Bhattacharya & Joseph H. Haslag & Antoine Martin, 2004. "Heterogeneity, redistribution, and the Friedman rule," Research Working Paper, Federal Reserve Bank of Kansas City RWP 04-01, Federal Reserve Bank of Kansas City.
    6. David K. Levine, 1991. "Asset Trading Mechanisms and Expansionary Policy," Levine's Working Paper Archive 43, David K. Levine.
    7. 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.
    8. 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.
    9. 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.
    10. Timothy J. Kehoe & David K. Levine & Michael Woodford, 1992. "The Optimum Quantity of Money Revisited," Levine's Working Paper Archive 2035, David K. Levine.
    11. Berentsen, Aleksander & Molico, Miguel & Wright, Randall, 2002. "Indivisibilities, Lotteries, and Monetary Exchange," Journal of Economic Theory, Elsevier, Elsevier, vol. 107(1), pages 70-94, November.
    12. Gabriele Camera, 2005. "Distributional aspects of the divisibility of money: an example," Economic Theory, Springer, Springer, vol. 25(2), pages 487-495, 02.
    13. Deviatov Alexei & Wallace Neil, 2001. "Another Example in which Lump-sum Money Creation is Beneficial," The B.E. Journal of Macroeconomics, De Gruyter, De Gruyter, vol. 1(1), pages 1-22, February.
    14. Katzman, Brett & Kennan, John & Wallace, Neil, 2003. "Output and price level effects of monetary uncertainty in a matching model," Journal of Economic Theory, Elsevier, Elsevier, vol. 108(2), pages 217-255, February.
    15. Imrohoroglu, Ayse, 1992. "The welfare cost of inflation under imperfect insurance," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 16(1), pages 79-91, January.
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    Cited by:
    1. Deviatov, Alexei & Wallace, Neil, 2009. "A model in which monetary policy is about money," Journal of Monetary Economics, Elsevier, Elsevier, vol. 56(3), pages 283-288, April.
    2. Guillaume Rocheteau, 2011. "The cost of inflation: a mechanism design approach," Working Paper 1103, Federal Reserve Bank of Cleveland.
    3. Zhu, Tao, 2008. "An overlapping-generations model with search," Journal of Economic Theory, Elsevier, Elsevier, vol. 142(1), pages 318-331, September.
    4. Guillaume Rocheteau, 2011. "On the coexistence of money and higher-return assets and its social role," Working Paper 1104, Federal Reserve Bank of Cleveland.
    5. Alexei Deviatov & Neil Wallace, 2014. "Optimal inflation in a model of inside money," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(2), pages 287-293, April.
    6. Neil Wallace & Alexei Deviatov, 2008. "A new model of central-bank intervention: some examples," 2008 Meeting Papers 489, Society for Economic Dynamics.

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