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Trejos-Wright with a 2-unit bound: existence and stability of monetary steady states

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  • Huang, Pidong
  • Igarashi, Yoske

Abstract

We investigate in details a Trejos-Wright random matching model of money with a consumer take-it-or-leave-it offer and the individual money holding set {0,1,2}. First we show generic existence of three kinds of steady states: (1) pure-strategy full-support steady states, (2) mixed-strategy full-support steady states, and (3) non-full-support steady states, and then we show relations between them. Finally we provide stability analyses. It is shown that (1) and (2) are locally stable, (1) being also determinate. (3) is shown to be unstable.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 46624.

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Date of creation: 16 Apr 2013
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Handle: RePEc:pra:mprapa:46624

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Keywords: random matching model; monetary steady state; local stability; determinacy; instability; Zhu (2003).;

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  1. Wallace, Neil & Zhu, Tao, 2004. "A commodity-money refinement in matching models," Journal of Economic Theory, Elsevier, vol. 117(2), pages 246-258, August.
  2. Hector Lomeli & Ted Temzelides, 2002. "Discrete time dynamics in a random matching monetary model," Economic Theory, Springer, vol. 20(2), pages 259-269.
  3. 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.
  4. Pidong Huang & Yoske Igarashi, 2013. "Why Ten $1’s Are Not Treated as a $10," Discussion Papers 1310, Exeter University, Department of Economics.
  5. Zhu, Tao, 2003. "Existence of a monetary steady state in a matching model: indivisible money," Journal of Economic Theory, Elsevier, vol. 112(2), pages 307-324, October.
  6. Edward J. Green & Ruilin Zhou, 2002. "Dynamic Monetary Equilibrium in a Random Matching Economy," Econometrica, Econometric Society, vol. 70(3), pages 929-969, May.
  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.
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Cited by:
  1. Huang, Pidong & Igarashi, Yoske, 2013. "Why Ten $1's Are Not Treated as a $10," MPRA Paper 46623, University Library of Munich, Germany.
  2. Huang, Pidong, 2013. "Robustness of Stability to cost of carrying money in a Matching Model of Money," MPRA Paper 46625, University Library of Munich, Germany.

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