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Prices, Information and Learning

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Author Info

  • Andrei Shevchenko
  • Luis Araujo

Abstract

We consider an economy where trade is decentralized and agents have incomplete information with respect to the value of money. Agents' learning evolves from private experiences and we explore how the formation of prices interacts with learning. We show that multiple equilibria arise, and equilibria with price dispersion entail more learning than equilibria with one price. Price dispersion increases communication about private histories, which in turn increases the overall amount of information in the economy. We also compare welfare under price dispersion and one price. Our results show that, despite the existence of some meetings where no trade takes place, welfare under price dispersion may be higher than under one price

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 118.

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Date of creation: 2004
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Handle: RePEc:red:sed004:118

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Keywords: Money; search; learning; price dispersion;

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Cited by:
  1. Araújo, Luis Fernando de Oliveira & Camargo, Braz Ministério de, 2010. "Monetary equilibrium with decentralized trade and learning," Textos para discussão 222, Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil).

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