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Trejos-Wright with a 2-unit bound: existence and stability of monetary steady states

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  • Pidong Huang

    (Korea University)

  • Yoske Igarashi

    (Department of Economics, University of Exeter)

Abstract

This paper investigates a Trejos-Wright random matching model of money with a consumer take-it-or-leave-it offer and with individual money holdings in the set {0, 1, 2}. It is shown that three kinds of monetary steady state exist generically: (1) pure-strategy full-support steady states, (2) mixed-strategy full-support steady states, and (3) non-full-support steady states. A full-support steady state exists if and only if a non-full-support steady state exists. Stability of these steady states is also studied. Both pure-strategy and mixedstrategy full-support steady states are locally stable. However, non-full-support steady states are unstable.

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File URL: http://people.exeter.ac.uk/cc371/RePEc/dpapers/DP1311.pdf
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Bibliographic Info

Paper provided by Exeter University, Department of Economics in its series Discussion Papers with number 1311.

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Date of creation: 2013
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Handle: RePEc:exe:wpaper:1311

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Related research

Keywords: random matching model; monetary steady state; local stability; determinacy; instability; Zhu (2003).;

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References

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  1. Huang, Pidong & Igarashi, Yoske, 2013. "Why Ten $1's Are Not Treated as a $10," MPRA Paper 46623, University Library of Munich, Germany.
  2. Edward J. Green & Ruilin Zhou, 2002. "Dynamic Monetary Equilibrium in a Random Matching Economy," Econometrica, Econometric Society, vol. 70(3), pages 929-969, May.
  3. Wallace, Neil & Zhu, Tao, 2004. "A commodity-money refinement in matching models," Journal of Economic Theory, Elsevier, vol. 117(2), pages 246-258, August.
  4. Hector Lomeli & Ted Temzelides, 2002. "Discrete time dynamics in a random matching monetary model," Economic Theory, Springer, vol. 20(2), pages 259-269.
  5. Zhu, Tao, 2005. "Existence of a monetary steady state in a matching model: divisible money," Journal of Economic Theory, Elsevier, vol. 123(2), pages 135-160, August.
  6. 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.
  7. 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, vol. 47(3), pages 701-722, 08.
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Cited by:
  1. Pidong Huang & Yoske Igarashi, 2013. "Why Ten $1’s Are Not Treated as a $10," Discussion Papers 1310, Exeter University, Department of Economics.
  2. Huang, Pidong, 2013. "Robustness of Stability to cost of carrying money in a Matching Model of Money," MPRA Paper 46625, University Library of Munich, Germany.

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