Search, money, and inflation under private information

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Search, money, and inflation under private information

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Huberto M. Ennis

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Huberto M. Ennis

Abstract

I study a version of the Lagos-Wright (2003) model of monetary exchange in which buyers have private information about their tastes and sellers make take-it-or-leave-it-offers (i.e., have the power to set prices and quantities). The introduction of imperfect information makes the existence of monetary equilibrium a more robust feature of the environment. In general, the model has a monetary steady state in which only a proportion of the agents hold money. Agents who do not hold money cannot participate in trade in the decentralized market. The proportion of agents holding money is endogenous and depends (negatively) on the level of expected inflation. As in Lagos and Wright's model, in equilibrium there is a positive welfare cost of expected inflation, but the origins of this cost are very different.

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Paper provided by Federal Reserve Bank of Minneapolis in its series Discussion Paper / Institute for Empirical Macroeconomics with number 142.

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Date of creation: 2004
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Handle: RePEc:fip:fedmem:142

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Other versions of this item:

Article
- Ennis, Huberto M., 2008. "Search, money, and inflation under private information," Journal of Economic Theory, Elsevier, vol. 138(1), pages 101-131, January. [Downloadable!] (restricted)
Paper
- Huberto M. Ennis, 2005. "Search, Money, and Inflation under Private Information," 2005 Meeting Papers 135, Society for Economic Dynamics. [Downloadable!]

This paper has been announced in the following NEP Reports:

NEP-ALL-2005-05-23 (All new papers)
NEP-DGE-2005-05-23 (Dynamic General Equilibrium)
NEP-MAC-2005-05-23 (Macroeconomics)
NEP-MON-2005-05-23 (Monetary Economics)

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.:

Eric Maskin & John Riley, 1984. "Monopoly with Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 171-196, Summer. [Downloadable!] (restricted)
Robert E. Lucas, Jr., 2000. "Inflation and Welfare," Econometrica, Econometric Society, vol. 68(2), pages 247-274, March.
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. [Downloadable!]
Shouyong Shi, 1997. "A Divisible Search Model of Fiat Money," Econometrica, Econometric Society, vol. 65(1), pages 75-102, January.
Other versions:
- Shouyong Shi, 1996. "A Divisible Search Model of Fiat Money," Working Papers 930, Queen's University, Department of Economics.
Randall Wright & Guillame Rocheteau, 2003. "Money in Search Equilibrium, in Competitive Equilibrium, and in Competitive Search Equilibrium," Levine's Bibliography 666156000000000302, UCLA Department of Economics. [Downloadable!]
Other versions:
- 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. [Downloadable!]
- 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. [Downloadable!]
- Guillaume Rocheteau & Randall Wright, 2005. "Money in Search Equilibrium, in Competitive Equilibrium, and in Competitive Search Equilibrium," Econometrica, Econometric Society, vol. 73(1), pages 175-202, 01. [Downloadable!] (restricted)
Faig, Miquel & Jerez, Belen, 2005. "A theory of commerce," Journal of Economic Theory, Elsevier, vol. 122(1), pages 60-99, May. [Downloadable!] (restricted)
Williamson, Steve & Wright, Randall, 1994. "Barter and Monetary Exchange under Private Information," American Economic Review, American Economic Association, vol. 84(1), pages 104-23, March. [Downloadable!] (restricted)
Other versions:
- Steve Williamson & Randall Wright, 1991. "Barter and monetary exchange under private information," Staff Report 141, Federal Reserve Bank of Minneapolis. [Downloadable!]
- Williamson, S. & Wright, R., 1991. "Barter and Monetary Exchange Under Private Information," University of Western Ontario, The Centre for the Study of International Economic Relations Working Papers 9107, University of Western Ontario, The Centre for the Study of International Economic Relations.
Woodford, Michael, 1994. "Monetary Policy and Price Level Determinacy in a Cash-in-Advance Economy," Economic Theory, Springer, vol. 4(3), pages 345-80.
Gabriele Camera & Alain Delacroix, 2004. "Trade Mechanism Selection in Markets with Frictions," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(4), pages 851-868, October. [Downloadable!] (restricted)
Other versions:
- Camera, Gabriele & Delacroix, Alain, 2003. "Trade Mechanism Selection in Markets with Frictions," Purdue University Economics Working Papers 1166, Purdue University, Department of Economics. [Downloadable!]

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.)

Benjamin Lester & Andrew Postlewaite & Randall Wright, 2008. "Information, Liquidity and Asset Prices," PIER Working Paper Archive 08-039, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania. [Downloadable!]
Ben Craig & Guillaume Rocheteau, 2006. "Inflation and welfare: a search approach," Policy Discussion Papers, Federal Reserve Bank of Cleveland, issue Jan. [Downloadable!]
Other versions:
- 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. [Downloadable!] (restricted)
Miquel Faig & Belen Jerez, 2005. "Inflation, Prices, And Information In Competitive Search," Economics Working Papers we051708, Universidad Carlos III, Departamento de Economía. [Downloadable!]
Other versions:
- Miquel Faig & Belén Jerez, 2006. "Inflation, Prices, and Information in Competitive Search," Working Papers tecipa-215, University of Toronto, Department of Economics. [Downloadable!]
- Belen Jerez & Miquel Faig, 2005. "Inflation, Prices, and Information in Competitive Search," 2005 Meeting Papers 462, Society for Economic Dynamics. [Downloadable!]
- Miquel Faig & Belén Jerez, 2006. "Inflation, Prices, and Information in Competitive Search," Advances in Macroeconomics, Berkeley Electronic Press, vol. 6(1), pages 1313-1313. [Downloadable!] (restricted)
Ben R. Craig & Guillaume Rocheteau, 2005. "State-dependent pricing, inflation, and welfare in search economies," Working Paper 0504, Federal Reserve Bank of Cleveland. [Downloadable!]
Other versions:
- Craig, Ben & Rocheteau, Guillaume, 2008. "State-dependent pricing, inflation, and welfare in search economies," European Economic Review, Elsevier, vol. 52(3), pages 441-468, April. [Downloadable!] (restricted)

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