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Money in a Model of Prior Production and Imperfectly Directed Search

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  • Adrian Masters

Abstract

This paper considers the effect of monetary policy and inflation on retail markets. It analyzes a model in which: goods are dated and produced prior to being retailed, buyers direct their search on the basis of price and general quality and, buyers' match specific tastes are their private information. Sellers set the same price for all buyers but some do not value the good highly enough to purchase it. The market economy is typically inefficient as a social planner would have the good consumed. The Friedman rule represents optimal policy as long as there is free-entry of sellers. When the upper bound on the number of participating sellers binds sufficiently, moderate levels of inflation can be welfare improving.

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Paper provided by University at Albany, SUNY, Department of Economics in its series Discussion Papers with number 10-11.

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Date of creation: 2010
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Handle: RePEc:nya:albaec:10-11

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Postal: Department of Economics, BA 110 University at Albany State University of New York Albany, NY 12222 U.S.A.
Phone: (518) 442-4735
Fax: (518) 442-4736

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Postal: Department of Economics, BA 110 University at Albany State University of New York Albany, NY 12222 U.S.A.
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Web: http://www.albany.edu/economics/research/workingp/index.shtml

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  1. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
  2. Acemoglu, D. & Shimer, R., 1997. "Efficient Unemployment Insurance," Working papers 97-9, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Adrian Masters, 2008. "Commitment, advertising and efficiency of two-sided investment in competitive search equilibrium," 2008 Meeting Papers 260, Society for Economic Dynamics.
  4. Ennis, Huberto M., 2008. "Search, money, and inflation under private information," Journal of Economic Theory, Elsevier, vol. 138(1), pages 101-131, January.
  5. Jafarey, Saqib & Masters, Adrian, 2003. " Output, Prices, and the Velocity of Money in Search Equilibrium," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(6), pages 871-88, December.
  6. Guido Menzio, 2007. "A Theory of Partially Directed Search," PIER Working Paper Archive 09-006, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  7. Miquel Faig & Belén Jerez, 2006. "Inflation, Prices, and Information in Competitive Search," Working Papers tecipa-215, University of Toronto, Department of Economics.
  8. Miquel Faig & Xiuhua Huangfu, 2006. "Competitive-Search Equilibrium In Monetary Economies," Working Papers tecipa-217, University of Toronto, Department of Economics.
  9. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
  10. 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.
  11. Ricardo Lagos & Randall Wright, 2002. "A unified framework for monetary theory and policy analysis," Working Paper 0211, Federal Reserve Bank of Cleveland.
  12. repec:ebl:ecbull:v:5:y:2008:i:7:p:1-7 is not listed on IDEAS
  13. Veronica Guerrieri, 2008. "Inefficient Unemployment Dynamics under Asymmetric Information," Journal of Political Economy, University of Chicago Press, vol. 116(4), pages 667-708, 08.
  14. Benoit Julien & Richard Dutu, 2008. "Ex-ante production, directed search and indivisible money," Economics Bulletin, AccessEcon, vol. 5(7), pages 1-7.
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