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Dynamic monetary equilibrium in a random-matching economy

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  • Edward J. Green
  • Ruilin Zhou

Abstract

This article concerns decentralized trading and efficiency. As in Gale (1986a, b), traders transfer endowments of divisible goods in random, pairwise meetings that take place in discrete time. Anonymity and absence of time preference forestall strategic power. As in Kiyotaki and Wright (1989), and in contrast to Gale, trade and consumption occur repeatedly. Absence of double coincidence of wants makes money essential. There is a continuum of welfare-ranked equilibria in which the level of economic activity is decreasing in the price level, from which Gale abstracts by focusing on relative prices. This indeterminacy constitutes coordination failure.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-00-1.

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Date of creation: 2000
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Handle: RePEc:fip:fedhwp:wp-00-1

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Keywords: Money ; Trade ; Consumption (Economics) ; Stock market;

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  1. 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.
  2. Camera, G. & Corbae, D., 1998. "Money and Price Dispersion," Working Papers 98-03, University of Iowa, Department of Economics.
  3. Ruilin Zhou, 1996. "Individual and aggregate real balances in a random matching model," Staff Report 222, Federal Reserve Bank of Minneapolis.
  4. Gilboa, Itzhak & Matsui, Akihiko, 1992. "A model of random matching," Journal of Mathematical Economics, Elsevier, vol. 21(2), pages 185-197.
  5. 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.
  6. Rubinstein, Ariel & Wolinsky, Asher, 1990. "Decentralized Trading, Strategic Behaviour and the Walrasian Outcome," Review of Economic Studies, Wiley Blackwell, vol. 57(1), pages 63-78, January.
  7. Hendry, S., 1993. "Endogenous Money and Goods Production in a Search Model," UWO Department of Economics Working Papers 9316, University of Western Ontario, Department of Economics.
  8. Cooper, Russell & John, Andrew, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, MIT Press, vol. 103(3), pages 441-63, August.
  9. Shouyong Shi, 1995. "Money and Prices: A Model of Search and Bargaining," Working Papers 916, Queen's University, Department of Economics.
  10. Roger B. Myerson & Mark A. Satterthwaite, 1981. "Efficient Mechanisms for Bilateral Trading," Discussion Papers 469S, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  11. Edward J. Green & Ruilin Zhou, 1996. "A Rudimentary Random-Matching Model with Divisible Money and Prices," GE, Growth, Math methods 9606001, EconWPA, revised 25 Jul 1996.
  12. Gale, Douglas M, 1986. "Bargaining and Competition Part I: Characterization," Econometrica, Econometric Society, vol. 54(4), pages 785-806, July.
  13. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-54, August.
  14. Cass, David, 1991. "Incomplete financial markets and indeterminacy of competitive equilibrium," CEPREMAP Working Papers (Couverture Orange) 9107, CEPREMAP.
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