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Money and the Gains from Trade

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  • Aleksander Berentsen
  • Guillaume Rocheteau

Abstract

This paper studies the role of money in environments where in each meeting there is a double coincidence of real wants. Traders who meet at random finance their purchases through current production, the sale of divisible money or both. It is shown that in the absence of valued money if traders have asymmetric tastes for each other’s good, they produce and exchange socially ine .cient quantities. With valued money, however, traders exchange efficient quantities if the asymmetry of tastes is not too large. It is shown that the gains from trade in the monetary economy are strictly greater than those in the corresponding barter economy, that the Friedman rule holds, and that the allocation of resources in the monetary economy converges to the allocation in the barter economy as the growth rate of the money supply is increased.

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Paper provided by Institute for Empirical Research in Economics - University of Zurich in its series IEW - Working Papers with number 100.

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Handle: RePEc:zur:iewwpx:100

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Keywords: Money; Double Coincidence; Bargaining; Search.;

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Citations

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Cited by:
  1. Aleksander Berentsen & Guillaume Rocheteau, . "Money and Information," IEW - Working Papers, Institute for Empirical Research in Economics - University of Zurich 099, Institute for Empirical Research in Economics - University of Zurich.
  2. Brian Peterson & Shouyong Shi, 2006. "Money, Price Dispersion and Welfare," Working Papers tecipa-191, University of Toronto, Department of Economics.
  3. Aleksander Berentsen & Guillaume Rocheteau, 2002. "Money in Bilateral Trade," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), Swiss Society of Economics and Statistics (SSES), vol. 138(IV), pages 489-506, December.
  4. Aleksander Berentsen & Alessandro Marchesiani & Christopher J. Waller, 2013. "Floor systems for implementing monetary policy: Some unpleasant fiscal arithmetic," ECON - Working Papers, Department of Economics - University of Zurich 121, Department of Economics - University of Zurich, revised Sep 2013.
  5. Zeira, Joseph, 2005. "Money and the Size of Transactions," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5010, C.E.P.R. Discussion Papers.
  6. Berentsen, Aleksander & Rocheteau, Guillaume, 2002. "On the efficiency of monetary exchange: how divisibility of money matters," Journal of Monetary Economics, Elsevier, Elsevier, vol. 49(8), pages 1621-1649, November.
  7. Aleksander Berentsen & Guillaume Rocheteau & Shouyong Shi, 2007. "Friedman Meets Hosios: Efficiency in Search Models of Money," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 117(516), pages 174-195, 01.
  8. Amendola, Nicola, 2008. "A "double coincidence" search model of money," MPRA Paper 7839, University Library of Munich, Germany.
  9. Guillaume Rocheteau & Peter Rupert & Randall Wright, 2008. "Inflation and Unemployment in General Equilibrium," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 109(4), pages 837-855, 03.
  10. Shouyong Shi, 2006. "A Microfoundation of Monetary Economics," Working Papers tecipa-211, University of Toronto, Department of Economics.
  11. Ricardo Lagos & Randall Wright, 2002. "A unified framework for monetary theory and policy analysis," Working Paper 0211, Federal Reserve Bank of Cleveland.
  12. Camera, Gabriele & Reed, Robert R. & Waller, Christopher J., 2003. "Can monetizing trade lower welfare? An example," Economics Letters, Elsevier, Elsevier, vol. 81(2), pages 179-186, November.

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