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Divisible Money in an Economy with Villages

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  • Miquel Faig

Abstract

This paper provides a tractable search model with divisible money that encompasses the two frameworks currently used in the literature. Individuals belong to many villages. Inside a village, individuals know each other so financial contracts are feasible. Money is essential to facilitate trade across villages. When financial markets inside a village are complete, the model generalizes the framework advanced by Lagos and Wright (2005) without having to assume quasi-linear preferences. Likewise, complete financial markets in each village substitutes for the representative household in the framework advanced by Shi (1997). The paper describes sets of financial arrangements that complete the markets inside the villages. In general, these financial arrangements include a combination of credit and insurance. However, if individuals choose period by period the trading role they play outside their village, then under some parametric restrictions either a lottery or a risk-free bond market are sufficient.

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Bibliographic Info

Paper provided by UCLA Department of Economics in its series Levine's Bibliography with number 122247000000000159.

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Date of creation: 22 Apr 2004
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Handle: RePEc:cla:levrem:122247000000000159

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  1. Rogerson, Richard, 1988. "Indivisible labor, lotteries and equilibrium," Journal of Monetary Economics, Elsevier, Elsevier, vol. 21(1), pages 3-16, January.
  2. David K. Levine, 1991. "Asset Trading Mechanisms and Expansionary Policy," Levine's Working Paper Archive 43, David K. Levine.
  3. Shouyong Shi, 1997. "A Divisible Search Model of Fiat Money," Econometrica, Econometric Society, Econometric Society, vol. 65(1), pages 75-102, January.
  4. Jin, Yi & Temzelides, Ted, 1998. "On the Local Interaction of Money and Credit," Working Papers, University of Iowa, Department of Economics 99-05, University of Iowa, Department of Economics.
  5. Ricardo Cavalcanti & Andres Erosa & Ted Temzelides, 1998. "Private Money and Reserve Management in a Random Matching Model," Macroeconomics, EconWPA 9803008, EconWPA.
  6. Ricardo Lagos & Randall Wright, 2005. "A Unified Framework for Monetary Theory and Policy Analysis," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 113(3), pages 463-484, June.
  7. Bernhard Rauch, 2000. "A Divisible Search Model of Fiat Money: A Comment," Econometrica, Econometric Society, Econometric Society, vol. 68(1), pages 149-156, January.
  8. Lucas, Robert Jr. & Prescott, Edward C., 1974. "Equilibrium search and unemployment," Journal of Economic Theory, Elsevier, Elsevier, vol. 7(2), pages 188-209, February.
  9. Narayana R. Kocherlakota, 1996. "Money is memory," Staff Report, Federal Reserve Bank of Minneapolis 218, Federal Reserve Bank of Minneapolis.
  10. Berentsen, Aleksander & Camera, Gabriele & Waller, Christopher, 2007. "Money, credit and banking," Journal of Economic Theory, Elsevier, Elsevier, vol. 135(1), pages 171-195, July.
  11. Guillaume Rocheteau & Randall Wright, 2004. "Money in search equilibrium, in competitive equilibrium, and in competitive search equilibrium," Working Paper 0405, Federal Reserve Bank of Cleveland.
  12. Guillaume Rocheteau & Randall Wright, 2003. "Inflation and Welfare in Models with Trading Frictions," PIER Working Paper Archive 03-032, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  13. Lucas, Robert Jr., 1990. "Liquidity and interest rates," Journal of Economic Theory, Elsevier, Elsevier, vol. 50(2), pages 237-264, April.
  14. 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, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(2), pages 637-670, 05.
  15. Bewley, Truman, 1983. "A Difficulty with the Optimum Quantity of Money," Econometrica, Econometric Society, Econometric Society, vol. 51(5), pages 1485-504, September.
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Cited by:
  1. Guillaume Rocheteau & Peter Rupert & Karl Shell & Randall Wright, 2006. "General Equilibrium with NonConvexities, Sunspots and Money," 2006 Meeting Papers, Society for Economic Dynamics 833, Society for Economic Dynamics.
  2. Miquel Faig & Belén Jerez, 2005. "Precautionary Balances And The Velocity Of Circulation Of Money," Economics Working Papers we051406, Universidad Carlos III, Departamento de Economía.
  3. Martin Menner, 2006. "Monetary Propagation In Search-Theoretic Monetary Models," Economics Working Papers we066426, Universidad Carlos III, Departamento de Economía.
  4. Stephen D. Williamson & Randall Wright, 2010. "New Monetarist Economics: models," Staff Report, Federal Reserve Bank of Minneapolis 443, Federal Reserve Bank of Minneapolis.
  5. Ben Craig & Guillaume Rocheteau, 2006. "Inflation and welfare: a search approach," Policy Discussion Papers, Federal Reserve Bank of Cleveland, Federal Reserve Bank of Cleveland, issue Jan.
  6. Martin Menner, 2005. "A Search-Theoretic Monetary Business Cycle Model With Capital Formation," Economics Working Papers we056634, Universidad Carlos III, Departamento de Economía.
  7. Sun, Hongfei, 2007. "Banking, Inside Money and Outside Money," MPRA Paper 4504, University Library of Munich, Germany.
  8. Miquel Faig & Belén Jerez, 2006. "Inflation, Prices, and Information in Competitive Search," Working Papers tecipa-215, University of Toronto, Department of Economics.
  9. Shouyong Shi, 2006. "Welfare Improvement from Restricting the Liquidity of Nominal Bonds," Working Papers tecipa-212, University of Toronto, Department of Economics.
  10. Martin Menner, 2011. ""Gesell Tax" and Efficiency of Monetary Exchange," Working Papers. Serie AD, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) 2011-26, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).

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