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A Rudimentary Random-Matching Model with Divisible Money and Prices

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  • Edward J. Green

    (Federal Reserve Bank of Minneapolis)

  • Ruilin Zhou

    (University of Pennsylvania)

Abstract

We consider a version of Kiyotaki and Wright's monetary search model in which agents can hold arbitrary amounts of divisible money. A continuum of stationary equilibria, indexed by the aggregate real-money stock, exist with all trading occurring at a single price. There is always a maximum level of the real money stock consistent with existence of such an equilibrium. In the limit as trading becomes faster relative to discounting, any real money stock becomes feasible in such an equilibrium. In contrast to the original Kiyotaki-Wright model, higher equilibrium real money stocks unambiguously correspond to higher welfare.

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Bibliographic Info

Paper provided by EconWPA in its series GE, Growth, Math methods with number 9606001.

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Date of creation: 01 Jun 1996
Date of revision: 25 Jul 1996
Handle: RePEc:wpa:wuwpge:9606001

Note: LaTeX file. Some definitions and notation have been revised to correspond to those used in ewp-ge/9612001.
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  1. William Vickrey, 1961. "Counterspeculation, Auctions, And Competitive Sealed Tenders," Journal of Finance, American Finance Association, vol. 16(1), pages 8-37, 03.
  2. Diamond, Peter & Yellin, Joel, 1990. "Inventories and Money Holdings in a Search Economy," Econometrica, Econometric Society, Econometric Society, vol. 58(4), pages 929-50, July.
  3. Shouyong Shi, 1995. "Money and Prices: A Model of Search and Bargaining," Working Papers 916, Queen's University, Department of Economics.
  4. Trejos, Alberto & Wright, Randall, 1995. "Search, Bargaining, Money, and Prices," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 103(1), pages 118-41, February.
  5. S. Rao Aiyagari & Neil Wallace & Randall Wright, 1996. "Coexistence of money and interest-bearing securities," Working Papers 550, Federal Reserve Bank of Minneapolis.
  6. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 97(4), pages 927-54, August.
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