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Two Monetary Models with Alternating Markets

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  • Gabriele Camera

    ()
    (Economic Science Institute, Chapman University)

  • YiLi Chien

    ()
    (Research Division, Federal Reserve Bank of St. Louis)

Abstract

We examine two monetary models with periodic interactions in centralized and decentralized markets: the cash-in-advance model and the model in Lagos and Wright (2005). Given conformity of preferences, technologies and shocks, both models reduce to a single di?erence equation. In stationary equilibrium, such equations coincide when the price distortion present in one model, due to Nash bargaining, is replicated in the other using a tax on cash revenues. In that case, the quantitative implications for the welfare cost of in?ation in each model are also comparable. Di?erences in the model’s performance reduce to di?erences in the pricing mechanism assumed to govern those transactions that must be settled with the exchange of cash.

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Bibliographic Info

Paper provided by Chapman University, Economic Science Institute in its series Working Papers with number 13-25.

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Length: 26 pages
Date of creation: 2013
Date of revision:
Handle: RePEc:chu:wpaper:13-25

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Keywords: cash-in-advance; matching; microfoundations; money; in?ation;

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  1. Lucas, Robert E, Jr, 1980. "Equilibrium in a Pure Currency Economy," Economic Inquiry, Western Economic Association International, vol. 18(2), pages 203-20, April.
  2. Jonathan Chiu & Miguel Molico, 2007. "Liquidity, Redistribution, and the Welfare Cost of Inflation," Working Papers 07-39, Bank of Canada.
  3. Lucas, Robert Jr., 1986. "Principles of fiscal and monetary policy," Journal of Monetary Economics, Elsevier, vol. 17(1), pages 117-134, January.
  4. Boel, Paola & Camera, Gabriele, 2009. "Financial sophistication and the distribution of the welfare cost of inflation," Journal of Monetary Economics, Elsevier, vol. 56(7), pages 968-978, October.
  5. Aleksander Berentsen & Gabriele Camera & Christopher Waller, . "Money, Credit and Banking," IEW - Working Papers 219, Institute for Empirical Research in Economics - University of Zurich.
  6. Jordi Galí & Mark Gertler, 2007. "Macroeconomic modeling for monetary policy evaluation," Economics Working Papers 1039, Department of Economics and Business, Universitat Pompeu Fabra, revised Jul 2007.
  7. Feenstra, Robert C., 1986. "Functional equivalence between liquidity costs and the utility of money," Journal of Monetary Economics, Elsevier, vol. 17(2), pages 271-291, March.
  8. Robert E. Lucas Jr. & Nancy L. Stokey, 1982. "Optimal Fiscal and Monetary Policy in an Economy Without Capital," Discussion Papers 532, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  9. 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.
  10. Ping He & Lixin Huang & Randall Wright, 2005. "Money And Banking In Search Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(2), pages 637-670, 05.
  11. Lucas, Robert Jr., 1982. "Interest rates and currency prices in a two-country world," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 335-359.
  12. Boel, Paola & Camera, Gabriele, 2011. "The Welfare Cost Of Inflation In Oecd Countries," Macroeconomic Dynamics, Cambridge University Press, vol. 15(S2), pages 217-251, September.
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  1. Two monetary models with alternating markets
    by Christian Zimmermann in NEP-DGE blog on 2014-01-23 21:44:17

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