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Monetary Exchange with Multilateral Matching

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  • Benoît Julien

    (Australian Graduate School of Management)

  • John Kennes

    (Department of Economics, University of Copenhagen)

  • Ian King

    (University of Otago)

Abstract

This paper analyzes monetary exchange in a search model allowing for multilateral matches to be formed, according to a standard urn-ballprocess. We consider three physical environments: indivisible goods and money, divisible goods and indivisible money, and divisible goods and money. We compare the results with Kiyotaki and Wright (1993), Trejos and Wright (1995), and Lagos and Wright (2005) respectively. We find that the multilateral matching setting generates very simple and intuitive equilibrium allocations that are similar to those in the other papers, but which have important differences. In particular, surplus maximization can be achieved in this setting, in equilibrium, with a positive money supply. Moreover, with flexible prices and directed search, the first best allocation can be attained through price posting or through auctions with lotteries, but not through auctions without lotteries. Finally, analysis of the case of divisible goods and money can be performed without the assumption of large families (as in Shi (1997)) or the day and night structure of Lagos and Wright (2005).

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Bibliographic Info

Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 05-18.

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Length: 37 pages
Date of creation: Jun 2005
Date of revision: Oct 2005
Handle: RePEc:kud:kuiedp:0518

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Keywords: monetary exchange; directed search; ex post bidding; multilateral matching;

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References

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  1. 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.
  2. Shi Shougong, 1995. "Money and Prices: A Model of Search and Bargaining," Journal of Economic Theory, Elsevier, vol. 67(2), pages 467-496, December.
  3. 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.
  4. Curtis, Elisabeth & Wright, Randall, 2004. "Price setting, price dispersion, and the value of money: or, the law of two prices," Journal of Monetary Economics, Elsevier, vol. 51(8), pages 1599-1621, November.
  5. Benoit Julien & John Kennes & Ian King, 2000. "Bidding for Labor," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(4), pages 619-649, October.
  6. Moen, E.R., 1995. "Competitive Search Equilibrium," Memorandum 37/1995, Oslo University, Department of Economics.
  7. Lu, Xiaohua & McAfee, R. Preston, 1996. "The Evolutionary Stability of Auctions over Bargaining," Games and Economic Behavior, Elsevier, vol. 15(2), pages 228-254, August.
  8. Shouyong Shi, 1997. "A Divisible Search Model of Fiat Money," Econometrica, Econometric Society, vol. 65(1), pages 75-102, January.
  9. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  10. 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.
  11. McAfee, R Preston, 1993. "Mechanism Design by Competing Sellers," Econometrica, Econometric Society, vol. 61(6), pages 1281-1312, November.
  12. Peter Rupert & Martin Schindler & Andrei Shevchenko & Randall Wright, 2000. "The search-theoretic approach to monetary economics: a primer," Economic Review, Federal Reserve Bank of Cleveland, issue Q IV, pages 10-28.
  13. Berentsen, Aleksander & Molico, Miguel & Wright, Randall, 2002. "Indivisibilities, Lotteries, and Monetary Exchange," Journal of Economic Theory, Elsevier, vol. 107(1), pages 70-94, November.
  14. Kenneth Burdett & Shouyong Shi & Randall Wright, 2001. "Pricing and Matching with Frictions," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 1060-1085, October.
  15. Wallace, Neil, 2001. "Whither Monetary Economics?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 847-69, November.
  16. Halko, Marja-Liisa & Kultti, Klaus & Niinimaki, Juha-Pekka, 2007. "Evolutionary stability of trading rules in an urn-ball matching model," Research in Economics, Elsevier, vol. 61(1), pages 11-15, March.
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Cited by:
  1. Boragan Aruoba, S. & Rocheteau, Guillaume & Waller, Christopher, 2007. "Bargaining and the value of money," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2636-2655, November.
  2. Halko, Marja-Liisa & Kultti, Klaus & Niinimaki, Juha-Pekka, 2007. "Evolutionary stability of trading rules in an urn-ball matching model," Research in Economics, Elsevier, vol. 61(1), pages 11-15, March.

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