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Search, Money and Capital: A Neoclassical Dichotomy, Second Version

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Author Info

  • S. Boragan Aruoba

    ()
    (Department of Economics, University of Maryland)

  • Randall Wright

    ()
    (Department of Economics, University of Pennsylvania)

Abstract

Recent work has reduced the gap between search-based monetary theory and mainstream macroeconomics by incorporating into the search model some centralized markets as well as some decentralized markets where money is essential. This paper takes a further step towards this integration by introducing labor, capital and neoclassical firms. The resulting framework nests the search-theoretic monetary model and a standard neoclassical growth model as special cases. Perhaps surprisingly, it also exhibits a dichotomy: one can determine the equilibrium path for the value of money independently of the paths of consumption, investment and employment in the centralized market.

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Bibliographic Info

Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 03-028.

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Length: 33 pages
Date of creation: 09 Sep 2002
Date of revision: 03 Sep 2003
Handle: RePEc:pen:papers:03-028

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Keywords: Money; Search; Capital;

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References

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  1. Aleksander Berentsen & Guillaume Rocheteau & Shouyong Shi, 2007. "Friedman Meets Hosios: Efficiency in Search Models of Money," Economic Journal, Royal Economic Society, vol. 117(516), pages 174-195, 01.
  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. P. Diamond, 1980. "Aggregate Demand Management in Search Equilibrium," Working papers 268, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Gary Hansen, 2010. "Indivisible Labor and the Business Cycle," Levine's Working Paper Archive 233, David K. Levine.
  5. 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.
  6. Kiyotaki, Nobuhiro & Wright, Randall, 1993. "A Search-Theoretic Approach to Monetary Economics," American Economic Review, American Economic Association, vol. 83(1), pages 63-77, March.
  7. S. Boragan Aruoba & Christopher J. Waller, 2005. "Money and Capital," 2005 Meeting Papers 550, Society for Economic Dynamics.
  8. 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.
  9. Cavalcanti, Ricardo de O & Wallace, Neil, 1999. "Inside and Outside Money as Alternative Media of Exchange," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(3), pages 443-57, August.
  10. Miquel Faig, 2001. "A Search Theory of Money and Commerce with Neoclassical Production," Working Papers faig-01-01, University of Toronto, Department of Economics.
  11. Rogerson, Richard, 1988. "Indivisible labor, lotteries and equilibrium," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 3-16, January.
  12. Ricardo Lagos & Randall Wright, 2002. "Dynamics, cycles and sunspot equilibria in "genuinely dynamic, fundamentally disaggregative" models of money," Working Paper 0210, Federal Reserve Bank of Cleveland.
  13. Kocherlakota, Narayana R., 1998. "Money Is Memory," Journal of Economic Theory, Elsevier, vol. 81(2), pages 232-251, August.
  14. 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.
  15. 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.
  16. Shouyong Shi, 1996. "A Divisible Search Model of Fiat Money," Working Papers 930, Queen's University, Department of Economics.
  17. 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.
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Citations

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Cited by:
  1. Zhu, Tao, 2008. "An overlapping-generations model with search," Journal of Economic Theory, Elsevier, vol. 142(1), pages 318-331, September.
  2. Ferraris, Leo & Watanabe, Makoto, 2011. "Collateral fluctuations in a monetary economy," Journal of Economic Theory, Elsevier, vol. 146(5), pages 1915-1940, September.
  3. Kannan, Prakash, 2009. "On the welfare benefits of an international currency," European Economic Review, Elsevier, vol. 53(5), pages 588-606, July.
  4. Guillaume Rocheteau & Ed Nosal, 2008. "Pairwise Trade, Asset Prices and Monetary Policy," 2008 Meeting Papers 774, Society for Economic Dynamics.
  5. Rocheteau, Guillaume, 2011. "Payments and liquidity under adverse selection," Journal of Monetary Economics, Elsevier, vol. 58(3), pages 191-205.
  6. Ferraris, Leo & Watanabe, Makoto, 2008. "Collateral secured loans in a monetary economy," Journal of Economic Theory, Elsevier, vol. 143(1), pages 405-424, November.
  7. S. Boragan Aruoba & Christopher J. Waller, 2005. "Money and Capital," 2005 Meeting Papers 550, Society for Economic Dynamics.
  8. Rocheteau, Guillaume & Rupert, Peter & Shell, Karl & Wright, Randall, 2008. "General equilibrium with nonconvexities and money," Journal of Economic Theory, Elsevier, vol. 142(1), pages 294-317, September.

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