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Liquidity, Bargaining, and Multiple Equilibria in a Search Monetary Model

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  • Shouyong Shi

    () (Department of Economics, Indiana University)

Abstract

In this paper I construct a search monetary model with capital accumulation where money and goods are both divisible. Agents in matches determine the terms of trade through a sequential bargaining process and they face trading restrictions that require the quantity of money traded not to exceed what the buyer brings into the match. I show that sellers¡¯ share of the match surplus decreases with the severity of the trading restrictions. Such endogenous surplus shares generate multiple, self-fulfilling monetary steady states. When liquidity is interpreted as the number of transactions, the steady state with higher aggregate activities has higher liquidity. In both steady states, an increase in the money growth rate increases aggregate output and consumption by increasing the number of matches.

Suggested Citation

  • Shouyong Shi, 2001. "Liquidity, Bargaining, and Multiple Equilibria in a Search Monetary Model," Annals of Economics and Finance, Society for AEF, vol. 2(2), pages 325-351, November.
  • Handle: RePEc:cuf:journl:y:2001:v:2:i:2:p:325-351
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    Cited by:

    1. Shouyong Shi & Mariana Rojas Breu & Aleksander Berentsen, 2009. "Liquidity and Growth," 2009 Meeting Papers 590, Society for Economic Dynamics.
    2. Shi, Shouyong, 2008. "Efficiency improvement from restricting the liquidity of nominal bonds," Journal of Monetary Economics, Elsevier, vol. 55(6), pages 1025-1037, September.
    3. Berentsen, Aleksander & Rocheteau, Guillaume, 2002. "On the efficiency of monetary exchange: how divisibility of money matters," Journal of Monetary Economics, Elsevier, vol. 49(8), pages 1621-1649, November.
    4. Korth, Christian & Napel, Stefan, 2009. "Fairness, price stickiness, and history dependence in decentralized trade," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 502-514, August.
    5. Wang, Weimin & Shi, Shouyong, 2006. "The variability of velocity of money in a search model," Journal of Monetary Economics, Elsevier, vol. 53(3), pages 537-571, April.
    6. Martin Menner, 2011. ""Gesell Tax" and Efficiency of Monetary Exchange," Working Papers. Serie AD 2011-26, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    7. Denis Nitikin & Chunli Shen & Qian Wang & Heng-fu Zou, 2011. "Land Taxation in China: Assessment of Prospects for Politically and Economically Sustainable Reform," CEMA Working Papers 431, China Economics and Management Academy, Central University of Finance and Economics.
    8. Wang, Gaowang, 2011. "Time Preference and Interest Rate in a dynamic general Equilibrium Model," MPRA Paper 34063, University Library of Munich, Germany.
    9. Shouyong Shi, 2002. "Nominal Bonds and Interest Rates: The Case of One-Period Bonds," Working Papers shouyong-03-03, University of Toronto, Department of Economics.
    10. Heng-fu Zou, 2011. "Foreign Asset Accumulation and Macroeconomic Policies in a Model of Mercantilism," CEMA Working Papers 432, China Economics and Management Academy, Central University of Finance and Economics.
    11. Shouyong Shi & Aleksander Berentsen, 2008. "Financial Deepening, Inflation and Economic Growth," 2008 Meeting Papers 673, Society for Economic Dynamics.
    12. Wang, Gaowang & Zou, Heng-fu, 2011. "Mercantilism, Foreign Asset Accumulation and Macroeconomic Policy," MPRA Paper 34519, University Library of Munich, Germany.
    13. 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.
    14. Faig, Miquel & Jerez, Belen, 2005. "A theory of commerce," Journal of Economic Theory, Elsevier, vol. 122(1), pages 60-99, May.

    More about this item

    Keywords

    Money Search; Capital; Liquidity; Multiplicity; Bargaining;

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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