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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. Bernhard Rauch, 2000. "A Divisible Search Model of Fiat Money: A Comment," Econometrica, Econometric Society, vol. 68(1), pages 149-156, January.
  2. 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.
  3. Narayana R. Kocherlakota, 1996. "Money is memory," Staff Report 218, Federal Reserve Bank of Minneapolis.
  4. Y. Jin & T. Temzelides, 1999. "On the Local Interaction of Money and Credit," Macroeconomics 9905001, EconWPA.
  5. Ricardo Lagos & Randall Wright, 2004. "A unified framework for monetary theory and policy analysis," Staff Report 346, Federal Reserve Bank of Minneapolis.
  6. Ricardo de O. Cavalcanti & Andres Erosa & Ted Temzelides, 1999. "Private money and reserve management in a random-matching model," Discussion Paper / Institute for Empirical Macroeconomics 128, Federal Reserve Bank of Minneapolis.
  7. Guillaume Rocheteau & Randall Wright, 2003. "Money in Search Equilibrium, in Competitive Equilibrium, and in Competitive Search Equilibrium," PIER Working Paper Archive 03-031, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  8. Rogerson, Richard, 1988. "Indivisible labor, lotteries and equilibrium," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 3-16, January.
  9. Berentsen, Aleksander & Camera, Gabriele & Waller, Christopher, 2007. "Money, credit and banking," Journal of Economic Theory, Elsevier, vol. 135(1), pages 171-195, July.
  10. Lucas, Robert Jr., 1990. "Liquidity and interest rates," Journal of Economic Theory, Elsevier, vol. 50(2), pages 237-264, April.
  11. Shouyong Shi, 1996. "A Divisible Search Model of Fiat Money," Working Papers 930, Queen's University, Department of Economics.
  12. David K. Levine, 1991. "Asset Trading Mechanisms and Expansionary Policy," Levine's Working Paper Archive 43, David K. Levine.
  13. 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.
  14. Lucas, Robert Jr. & Prescott, Edward C., 1974. "Equilibrium search and unemployment," Journal of Economic Theory, Elsevier, vol. 7(2), pages 188-209, February.
  15. Bewley, Truman, 1983. "A Difficulty with the Optimum Quantity of Money," Econometrica, 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 833, Society for Economic Dynamics.
  2. Ben Craig & Guillaume Rocheteau, 2008. "Inflation and Welfare: A Search Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(1), pages 89-119, 02.
  3. Martin Menner, 2011. ""Gesell Tax" and Efficiency of Monetary Exchange," Working Papers. Serie AD 2011-26, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  4. Stephen D. Williamson & Randall Wright, 2010. "New Monetarist Economics: models," Staff Report 443, Federal Reserve Bank of Minneapolis.
  5. Miquel Faig & Belén Jerez, 2006. "Precautionary Balances and the Velocity of Circulation of Money," Working Papers tecipa-188, University of Toronto, Department of Economics.
  6. Menner Martin, 2006. "A Search-Theoretic Monetary Business Cycle Model with Capital Formation," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(1), pages 1-36, November.
  7. Shouyong Shi, 2006. "Welfare Improvement from Restricting the Liquidity of Nominal Bonds," Working Papers tecipa-212, University of Toronto, Department of Economics.
  8. Faig Miquel & Jerez Belén, 2006. "Inflation, Prices, and Information in Competitive Search," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(1), pages 1-34, September.
  9. Hongfei Sun, 2007. "Banking, Inside Money and Outside Money," Working Papers 1146, Queen's University, Department of Economics.
  10. Martin Menner, 2006. "Monetary Propagation In Search-Theoretic Monetary Models," Economics Working Papers we066426, Universidad Carlos III, Departamento de Economía.

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