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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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References

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Citations

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Cited by:
  1. Aleksander Berentsen & Guillaume Rocheteau, 2004. "Money and Information," Review of Economic Studies, Wiley Blackwell, vol. 71(4), pages 915-944, October.
  2. Zeira, Joseph, 2005. "Money and the Size of Transactions," CEPR Discussion Papers 5010, C.E.P.R. Discussion Papers.
  3. Aleksander Berentsen & Guillaume Rocheteau & Shouyong Shi, 2007. "Friedman Meets Hosios: Efficiency in Search Models of Money," Economic Journal, Royal Economic Society, vol. 117(516), pages 174-195, 01.
  4. Aleksander Berentsen & Alessandro Marchesiani & Christopher J. Waller, 2013. "Floor systems for implementing monetary policy: Some unpleasant fiscal arithmetic," ECON - Working Papers 121, Department of Economics - University of Zurich, revised Sep 2013.
  5. Aleksander Berentsen & Guillaume Rocheteau, . "On the Efficiency of Monetary Exchange:How Divisibility of Money Matters," IEW - Working Papers 101, Institute for Empirical Research in Economics - University of Zurich.
  6. Aleksander Berentsen & Guillaume Rocheteau, 2002. "Money in Bilateral Trade," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 138(IV), pages 489-506, December.
  7. Shouyong Shi, 2006. "A Microfoundation of Monetary Economics," Working Papers tecipa-211, University of Toronto, Department of Economics.
  8. Guillaume Rocheteau & Peter Rupert & Randall Wright, 2008. "Inflation and Unemployment in General Equilibrium," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(4), pages 837-855, 03.
  9. Ricardo Lagos & Randall Wright, 2004. "A unified framework for monetary theory and policy analysis," Staff Report 346, Federal Reserve Bank of Minneapolis.
  10. Brian Peterson & Shouyong Shi, 2004. "Money, price dispersion and welfare," Economic Theory, Springer, vol. 24(4), pages 907-932, November.
  11. Camera, Gabriele & Reed, Robert R. & Waller, Christopher J., 2003. "Can monetizing trade lower welfare? An example," Economics Letters, Elsevier, vol. 81(2), pages 179-186, November.
  12. Amendola, Nicola, 2008. "A "double coincidence" search model of money," MPRA Paper 7839, University Library of Munich, Germany.

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