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Anonymous Markets and Monetary Trading

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  • Aliprantis, C.D.
  • Camera, Gabriele
  • Puzzello, D.

Abstract

We study an infinite-horizon economy with two basic frictions that are typical in monetary models. First, agents’ trading paths cross at most once due to pairwise trade and other meeting obstacles. Second, actions must be compatible with individual incentives due to commitment and enforcement limitations. We find that, with patient agents, relaxing the first friction by introducing centralized markets, opens the door to an informal enforcement scheme sustaining a non-monetary efficient allocation. Hence, we present a matching environment in which agents repeatedly access large markets and yet the basic frictions are retained. This allows the construction of models based on competitive markets in which money plays an essential role.

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Bibliographic Info

Paper provided by Purdue University, Department of Economics in its series Purdue University Economics Working Papers with number 1179.

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Length: 32 pages
Date of creation: Oct 2005
Date of revision:
Handle: RePEc:pur:prukra:1179

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Keywords: Money ; Infinite games ; Matching models ; Social norms;

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References

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  1. Kocherlakota, Narayana R., 1998. "Money Is Memory," Journal of Economic Theory, Elsevier, vol. 81(2), pages 232-251, August.
  2. Levine, David K & Pesendorfer, Wolfgang, 1995. "When Are Agents Negligible?," American Economic Review, American Economic Association, vol. 85(5), pages 1160-70, December.
  3. Ostroy, Joseph M, 1973. "The Informational Efficiency of Monetary Exchange," American Economic Review, American Economic Association, vol. 63(4), pages 597-610, September.
  4. Aleksander Berentsen & Gabriele Camera & Christopher Waller, . "The Distribution of Money Balances and the Non-Neutrality of Money," IEW - Working Papers 220, Institute for Empirical Research in Economics - University of Zurich.
  5. Edward J. Green & Ruilin Zhou, . ""A Rudimentary Model of Search with Divisible Money and Prices''," CARESS Working Papres 95-17, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  6. John Moore & Nobuhiro Kiyotaki, 2008. "Liquidity, Business Cycles, and Monetary Policy," 2008 Meeting Papers 35, Society for Economic Dynamics.
  7. Ricardo Lagos & Randall Wright, 2005. "A Unified Framework for Monetary Theory and Policy Analysis," Journal of Political Economy, University of Chicago Press, vol. 113(3), pages 463-484, June.
  8. Shouyong Shi, 1996. "A Divisible Search Model of Fiat Money," Working Papers 930, Queen's University, Department of Economics.
  9. Drew Fudenberg, 1995. "When Are Non-Anonymous Players Negligible?," Discussion Papers 1114, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  10. Araujo, Luis, 2004. "Social norms and money," Journal of Monetary Economics, Elsevier, vol. 51(2), pages 241-256, March.
  11. Huggett, Mark & Krasa, Stefan, 1996. "Money and Storage in a Differential Information Economy," Economic Theory, Springer, vol. 8(2), pages 191-210, August.
  12. 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.
  13. Aliprantis, C.D. & Camera, G. & Puzzello, D., 2007. "A random matching theory," Games and Economic Behavior, Elsevier, vol. 59(1), pages 1-16, April.
  14. Neil Wallace, 1998. "A dictum for monetary theory," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 20-26.
  15. Hahn, Frank H, 1973. "On Transaction Costs, Inessential Sequence Economies and Money," Review of Economic Studies, Wiley Blackwell, vol. 40(4), pages 449-61, October.
  16. 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.
  17. Boel, Paola & Camera, Gabriele, 2004. "Efficient Monetary Allocations and the Illiquidity of Bonds," Purdue University Economics Working Papers 1171, Purdue University, Department of Economics.
  18. Michi Kandori, 2010. "Social Norms and Community Enforcement," Levine's Working Paper Archive 630, David K. Levine.
  19. Al-Najjar, Nabil I. & Smorodinsky, Rann, 2001. "Large Nonanonymous Repeated Games," Games and Economic Behavior, Elsevier, vol. 37(1), pages 26-39, October.
  20. Hellwig, Martin F., 1993. "The challenge of monetary theory," European Economic Review, Elsevier, vol. 37(2-3), pages 215-242, April.
  21. Glen Ellison, 2010. "Cooperation in the Prisoner's Dilemma with Anonymous Random Matching," Levine's Working Paper Archive 631, David K. Levine.
  22. Camera, Gabriele & Corbae, Dean, 1999. "Money and Price Dispersion," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 985-1008, November.
  23. Charalambos Aliprantis & Gabriele Camera & Daniela Puzzello, 2006. "Matching and anonymity," Economic Theory, Springer, vol. 29(2), pages 415-432, October.
  24. Green, Edward J., 1980. "Noncooperative price taking in large dynamic markets," Journal of Economic Theory, Elsevier, vol. 22(2), pages 155-182, April.
  25. Camera, Gabriele, 2000. "Money, Search, And Costly Matchmaking," Macroeconomic Dynamics, Cambridge University Press, vol. 4(03), pages 289-323, September.
  26. Edward J. Green & Ruilin Zhou, 2000. "Dynamic monetary equilibrium in a random-matching economy," Working Paper Series WP-00-1, Federal Reserve Bank of Chicago.
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