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Dynamic monetary equilibrium in a random-matching economy

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Author Info
Edward J. Green
Ruilin Zhou

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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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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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This paper has been announced in the following NEP Reports: References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Rubinstein, Ariel & Wolinsky, Asher, 1990. "Decentralized Trading, Strategic Behaviour and the Walrasian Outcome," Review of Economic Studies, Blackwell Publishing, vol. 57(1), pages 63-78, January. [Downloadable!] (restricted)
  2. Camera, Gabriele & Corbae, Dean, 1999. "Money and Price Dispersion," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 985-1008, November.
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  3. Green, Edward J. & Zhou, Ruilin, 1998. "A Rudimentary Random-Matching Model with Divisible Money and Prices," Journal of Economic Theory, Elsevier, vol. 81(2), pages 252-271, August. [Downloadable!] (restricted)
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  4. Gale, Douglas M, 1986. "Bargaining and Competition Part I: Characterization," Econometrica, Econometric Society, vol. 54(4), pages 785-806, July. [Downloadable!] (restricted)
  5. Shi Shougong, 1995. "Money and Prices: A Model of Search and Bargaining," Journal of Economic Theory, Elsevier, vol. 67(2), pages 467-496, December. [Downloadable!] (restricted)
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  6. Cass, David, 1991. "Incomplete financial markets and indeterminacy of competitive equilibrium," CEPREMAP Working Papers (Couverture Orange) 9107, CEPREMAP.
  7. 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. [Downloadable!] (restricted)
  8. 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.
  9. Myerson, Roger B. & Satterthwaite, Mark A., 1983. "Efficient mechanisms for bilateral trading," Journal of Economic Theory, Elsevier, vol. 29(2), pages 265-281, April. [Downloadable!] (restricted)
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  10. 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. [Downloadable!] (restricted)
  11. 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. [Downloadable!] (restricted)
  12. Itzhak Gilboa & Akihiko Matsui, 1990. "A Model of Random Matching," Discussion Papers 887, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
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  13. 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. [Downloadable!] (restricted)
  14. Zhou, Ruilin, 1999. "Individual and Aggregate Real Balances in a Random-Matching Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 1009-38, November.
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Scott J. Dressler, 2009. "Money Holdings, Inflation, and Welfare in a Competitive Market," Villanova School of Business Department of Economics and Statistics Working Paper Series 2, Villanova School of Business Department of Economics and Statistics. [Downloadable!]
  2. Aliprantis, C.D. & Camera, Gabriele & Puzzello, D., 2005. "Anonymous Markets and Monetary Trading," Purdue University Economics Working Papers 1179, Purdue University, Department of Economics. [Downloadable!]
    Other versions:
  3. Kazuya Kamiya & Takashi Shimizu, 2009. "Stationary Monetary Equilibria with Strictly Increasing Value Functions and Non-Discrete Money Holdings Distributions: An Indeterminacy Result," CIRJE F-Series CIRJE-F-615, CIRJE, Faculty of Economics, University of Tokyo. [Downloadable!]
  4. Zhu, Tao, 2002. "Existence of Monetary Steady States in a Matching Model: Indivisible Money," Working Papers 5-02-1, Pennsylvania State University, Department of Economics. [Downloadable!]
  5. Irina A. Telyukova & Randall Wright, 2007. "A model of money and credit, with application to the credit card debt puzzle," Working Paper 0711, Federal Reserve Bank of Cleveland. [Downloadable!]
    Other versions:
  6. Ricardo Lagos & Guillaume Rocheteau, 2008. "Liquidity in asset markets with search frictions," Staff Report 408, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  7. Aliprantis, C.D. & Camera, G. & Ruscitti, F., 2007. "Monetary Equilibrium and the Differentiability of the Value Function," Purdue University Economics Working Papers 1199, Purdue University, Department of Economics. [Downloadable!]
    Other versions:
  8. Kazuya Kamiya & Takashi Shimizu, 2005. "On the Role of Tax-Subsidy Scheme in Money Search Models," CIRJE F-Series CIRJE-F-323, CIRJE, Faculty of Economics, University of Tokyo. [Downloadable!]
  9. Kazuya Kamiya & Takashi Shimizu, 2004. "Real Indeterminacy of Stationary Equilibria in Matching Models with Media of Exchange," CIRJE F-Series CIRJE-F-167, CIRJE, Faculty of Economics, University of Tokyo. [Downloadable!]
  10. Darrell Duffie & Yeneng Sun, 2004. "The Exact Law of Large Numbers for Independent Random Matching," Levine's Bibliography 122247000000000328, UCLA Department of Economics. [Downloadable!]
  11. C.D. Aliprantis & G. Camera, 2004. "A Theoretical Foundation for Bilateral Matching Mechanisms," Econometric Society 2004 North American Summer Meetings 10, Econometric Society. [Downloadable!]
  12. Edward J. Green & Ruilin Zhou, 2001. "Price level uniformity in a random matching model with perfectly patient traders," Working Paper Series WP-01-17, Federal Reserve Bank of Chicago. [Downloadable!]
  13. Karavaev, Andrei, 2008. "A Theory of Continuum Economies with Idiosyncratic Shocks and Random Matchings," MPRA Paper 7445, University Library of Munich, Germany. [Downloadable!]
  14. Ruilin Zhou, 1999. "Does commodity money eliminate the indeterminacy of equilibria?," Working Paper Series WP-99-15, Federal Reserve Bank of Chicago. [Downloadable!]
    Other versions:
  15. Kazuya Kamiya & Takashi Shimizu, 2006. "A Dynamic General Equilibrium Model with Centralized Auction Markets," CIRJE F-Series CIRJE-F-417, CIRJE, Faculty of Economics, University of Tokyo. [Downloadable!]
  16. Manolis Galenianos & Philipp Kircher, 2005. "A Model of Money with Multilateral Matching, Second Version," PIER Working Paper Archive 07-004, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 01 Nov 2006. [Downloadable!]
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