On the Friedman Rule in Search Models with Divisible Money
Abstract
This paper studies the validity of the Friedman rule in a search model with divisible money and divisible goods where the terms of trades are determined endogenously. We show that ex post bargaining generates a holdup problem similar to the one emphasized in the labour-market literature. Buyers cannot obtain the full return that an additional unit of money provides to the match, which makes the purchasing power of money inefficiently low in equilibrium. Consequently, even though the Friedman rule maximizes the purchasing power of money, it fails to generate the first-best allocation of resources unless buyers have all the bargaining power.Download Info
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Paper provided by Institute for Empirical Research in Economics - University of Zurich in its series IEW - Working Papers with number 155.Length:
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Handle: RePEc:zur:iewwpx:155
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Keywords: Money; Search; Friedman rule;Other versions of this item:
- Aleksander Berentsen & Guillaume Rocheteau, 2003. "On the Friedman Rule in Search Models with Divisible Money," The B.E. Journal of Macroeconomics, De Gruyter, vol. 0(1), pages 11.
- E00 - Macroeconomics and Monetary Economics - - General - - - General
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
This paper has been announced in the following NEP Reports:
- NEP-DGE-2003-07-04 (Dynamic General Equilibrium)
- NEP-MAC-2003-07-04 (Macroeconomics)
References
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
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"A Unified Framework for Monetary Theory and Policy Analysis,"
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