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A Note on the implementation of the Pareto efficient allocation in the Lagos-Wright model

  • Tao Peng

    ()

    (Southwestern University of Finance and Economics)

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This note modifies Lagos – Wright (2005) by adding subsidies to sellers. We show that this modification can result in a Pareto efficient allocation at the Friedman rule when buyers do not have all the bargaining power. We find that the optimal rate of subsidy is increasing in buyers' relative risk aversion coefficient.

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File URL: http://www.accessecon.com/Pubs/EB/2012/Volume32/EB-12-V32-I1-P4.pdf
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Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 32 (2012)
Issue (Month): 1 ()
Pages: 27-36

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Handle: RePEc:ebl:ecbull:eb-10-00532
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  1. Schmitt-Grohé, Stephanie & Uribe, Martín, 2010. "The Optimal Rate of Inflation," CEPR Discussion Papers 7864, C.E.P.R. Discussion Papers.
  2. Isabel Horta Correia & Juan Pablo Nicolini & Pedro Teles, 2003. "Optimal Fiscal and Monetary Policy: Equivalence Results," Working Papers w200303, Banco de Portugal, Economics and Research Department.
  3. Ricardo Lagos & Guillaume Rocheteau, 2005. "Inflation, Output, And Welfare," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(2), pages 495-522, 05.
  4. Gomis-Porqueras, Pedro & Peralta-Alva, Adrian, 2010. "Optimal monetary and fiscal policies in a search theoretic model of monetary exchange," European Economic Review, Elsevier, vol. 54(3), pages 331-344, April.
  5. S. Boragan Aruoba & Sanjay K. Chugh, 2006. "Optimal fiscal and monetary policy when money is essential," International Finance Discussion Papers 880, Board of Governors of the Federal Reserve System (U.S.).
  6. Ricardo Lagos & Randall Wright, 2002. "A unified framework for monetary theory and policy analysis," Working Paper 0211, Federal Reserve Bank of Cleveland.
  7. P. Diamond, 1980. "Aggregate Demand Management in Search Equilibrium," Working papers 268, Massachusetts Institute of Technology (MIT), Department of Economics.
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