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Directed Multilateral Matching in a Monetary Economy

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  • Manolis Galenianos

    ()
    (Economics University of Pennsylvania)

  • Philipp Kircher

Abstract

We consider a monetary economy with directed multilateral matching between buyers and sellers. A buyer chooses how much money to hold, observes the location of all sellers, and decides which seller to visit. The number of buyers that arrive at a particular seller is random due to lack of coordination. Every seller has a single indivisible good and all buyers have the same valuation for the good, though they may hold different amounts of money. The good is allocated according to a second price auction where buyers bid with their money rather than valuations. We show that in equilibrium ex ante identical buyers choose different money holdings: carrying more money is costly but it increases the probability of winning the auction. The unique equilibrium distribution of money holdings is analytically characterized. The entry of sellers is efficient at the Friedman rule but is suboptimal for higher inflation rates

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 708.

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Date of creation: 03 Dec 2006
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Handle: RePEc:red:sed006:708

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Related research

Keywords: Money Search; Auctions;

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Cited by:
  1. Richard Dutu & Benoit Julien & Ian King, 2009. "Liquidity Constrained Competing Auctions," Department of Economics - Working Papers Series 1068, The University of Melbourne.

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