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Search, Money, and Inflation under Private Information

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  • Huberto M. Ennis

    ()
    (Research Department Federal Reserve Bank of Richmond)

Abstract

I study a version of the Lagos-Wright (2003) model of monetary exchange in which buyers have private information about their tastes and sellers make take-it-or-leave-it-offers (i.e., have the power to set prices and quantities). The introduction of imperfect information makes the existence of monetary equilibrium a more robust feature of the environment. In general, the model has a monetary steady state in which only a proportion of the agents hold money. Agents who do not hold money cannot participate in trade in the decentralized market. The proportion of agents holding money is endogenous and depends (negatively) on the level of expected inflation. As in Lagos and Wright's model, in equilibrium there is a positive welfare cost of expected inflation, but the origins of this cost are very different.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2005 Meeting Papers with number 135.

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Date of creation: 2005
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Handle: RePEc:red:sed005:135

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Keywords: Random Matching; Private Information; Welfare;

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  1. 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.
  2. Faig Miquel & Jerez Belén, 2006. "Inflation, Prices, and Information in Competitive Search," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(1), pages 1-34, September.
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Citations

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Cited by:
  1. Mei Dong & Janet Hua Jiang, 2011. "Money and Price Posting under Private Information," Working Papers 11-22, Bank of Canada.
  2. Williamson, Stephen & Wright, Randall, 2010. "New Monetarist Economics: Models," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 2, pages 25-96 Elsevier.
  3. Galenianos, Manolis & Kircher, Philipp, 2008. "A model of money with multilateral matching," Journal of Monetary Economics, Elsevier, vol. 55(6), pages 1054-1066, September.
  4. Ben Craig & Guillaume Rocheteau, 2006. "Inflation and welfare: a search approach," Policy Discussion Papers, Federal Reserve Bank of Cleveland, issue Jan.
  5. Williamson, Stephen D. & Wright, Randall, 2010. "New Monetarist Economics: Methods," MPRA Paper 21486, University Library of Munich, Germany.
  6. Craig, Ben & Rocheteau, Guillaume, 2008. "State-dependent pricing, inflation, and welfare in search economies," European Economic Review, Elsevier, vol. 52(3), pages 441-468, April.
  7. Allen Head & Lucy Qian Liu & Guido Menzio & Randall Wright, 2011. "Sticky prices: a new monetarist approach," Working Papers 690, Federal Reserve Bank of Minneapolis.
  8. Rocheteau, Guillaume, 2011. "Payments and liquidity under adverse selection," Journal of Monetary Economics, Elsevier, vol. 58(3), pages 191-205.
  9. Adrian Masters, 2010. "Money in a Model of Prior Production and Imperfectly Directed Search," Discussion Papers 10-11, University at Albany, SUNY, Department of Economics.
  10. Miquel Faig & Belén Jerez, 2006. "Inflation, Prices, and Information in Competitive Search," Working Papers tecipa-215, University of Toronto, Department of Economics.
  11. Guillaume Rocheteau, 2011. "The cost of inflation: a mechanism design approach," Working Paper 1103, Federal Reserve Bank of Cleveland.
  12. Benjamin Lester & Andrew Postlewaite & Randall Wright, 2008. "Information, Liquidity and Asset Prices," PIER Working Paper Archive 08-039, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.

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